Weekly Market Drivers for the USA
The Hurricane Harvey price increases are starting to realize downward pressure as production issues have been resolved and buyers begin to contest the rapid and unknown definite timing of the increases.
▪ Suppliers implemented the mid-month $0.03/lb increase.
▪ As of November 1st , PE prices have increased $0.10/lb above the July price. The actual implementation dates of the three increases varied from supplier to supplier.
▪ LBI removed their force majeure effective November 1st.
▪ Off-grade prices continued to decrease. Most resins are not more than $0.10/lb over the July/August prices.
▪ According to Reuters; The WTI calendar spread for the next six months moved from "contango" into "backwardation" Tuesday. Backwardation is when the current price of oil is higher than a future cost of oil. It is a sign of higher immediate demand.
▪ Ethylene: Ethylene prices steadily declined in October from the September spikes due to Hurricane Harvey shut downs. Spot prices were lower for the third week in a row; down $0.02/lb to $0.25/lb. Traders remain bearish on taking ethylene positions.
▪ Naphtha: Naphtha prices surged $20/mt this week to $560/mt. Naphtha is selling at a 2017 high.
▪ Asia: The cost to produce a pellet at the end of October was the highest in two years near $0.52/lb. Tight supplies and rising feedstocks have pushed the SEA HDPE prices to a two year high.
▪ Latin America: Offers in October improved. Middle Eastern suppliers took advantage of the North America markets and heavily shipped into LA.
▪ Europe: October PE prices increased in line with the ethylene contract, which settled €30/mt higher for the second consecutive month. November prices are expected to remain firm after the two consecutive months of increases.
PE Outlook and Suggested Action Strategies
30 Days: There are no drivers to announce any additional increases. Suppliers can expect price pressure from buyers as the Hurricane Harvey issues are resolved. Manage inventories as needed.
60/90 Days: Current price levels cannot be sustained as inventories recover. The resin market prices have peaked and buyers should manage inventories until $0.07-0.10/lb of the recent increases are removed in the next 90-120 days.
October PGP settles up $0.015/lb to $0.48/lb!
▪ Spot PGP is currently valued at $0.45/lb, which gives an implied November contract price of $0.47/lb to $0.475/lb. It is still very early in November, and we do not expect a November settlement this early in the month.
▪ There has been some discussion that Enterprise is pushing a new methodology for settling the monthly PGP contract price. It would essentially be settled by the 45-day weighted average of spot PGP. We will keep you informed as additional information surfaces.
▪ An ExxonMobil refinery in Louisiana experienced a fire which effected their crude distillation unit and FCC unit. The fire is contained but no word on when the plant will restart.
▪ New polypropylene capacity additions are still a minimum of two years out with Formosa and Braskem plans for late 2019 and 2H 2020.
▪ LBI recently stated they are exploring a propylene and polypropylene expansion. No details were available regarding technology and volumes, but LBI does expect to make a decision by the end of 2018.
▪ Spot PGP last traded at $0.44/lb, but the most recent bid/offer was seen at $0.44/lb by $0.46/lb, indicating a value of $0.45/lb.
▪ Spot RGP is valued $0.33/lb.
▪ Refinery rates were up this week with US rates at 88.1% and PADD3 rates at 90.4%.
▪ Heavy feeds are priced out of the cracker feedslate which is limiting propylene by-product.
▪ EIA propylene inventory fell from 2.68 to 2.52 million/bbl.
▪ Enterprise is start-up mode with their new PDH. They are anticipating full-rate production by the end of November.
RTi PP Outlook and Suggested Action Strategies
30 Days: PGP and polypropylene prices are looking to settle flat to slightly down for November.
60/90 Days: There is a lot of uncertainty moving forward with the biggest wild card being the start-up of the EPD PDH unit. A good start-up will bring balance to PGP and off-set the yield losses at the steam cracker.
Ethylene contract settled down $0.005/lb for October as spot fell more than $0.01/lb over the past week and export PVC fell below $0.37/lb.
▪ Export pricing moved below $0.37/lb as demand continued to be restrained and waiting for improvement in the Asian region. Improved global production is helping with supply.
▪ PVC pricing is moving up $0.03/lb in the broad market in October with some variation on timing, but that move should be short-lived as lower PVC export prices, lower ethylene prices, improved global supplies, slower seasonal demand, and contract negotiations will pressure pricing lower.
▪ Expect pricing to erode starting in November through the end of the year and into early next with a reversal of the $0.03/lb increase and additional erosion of $0.01-0.02/lb.
Supply & Demand
▪ Supply: All PVC and upstream FM have been removed, with Formosa being the last to come off. Shintech has applied for permitting on a potential 800 million pound PVC expansion in LA.
▪ Demand: Although we are seeing robust GDP growth and a strong year for remodeling and new home construction, we are out of the heart of the construction season, allowing for PVC producers to catch up from lost production due to Harvey.
▪ Chlorine: Downstream ethylene dichloride supplies were deemed healthy, which has reduced demand for chlorine. Despite slower demand and improved supplies post-Harvey, chlorine prices are stable as a result of limited trading.
▪ Ethylene: Ethylene prices steadily declined in October from the September spikes due to Hurricane Harvey shut downs. Spot prices were lower for the third week in a row; down $0.02/lb to $0.25/lb. Traders remain bearish on taking ethylene positions
▪ Asia: PVC prices were flat to slightly lower as supplies were seen outpacing demand in SEA.
▪ Europe: Market fundamentals remained mostly balanced this week, with PVC pricing holding true to the trend with flat pricing. The November ethylene contract in Europe rolled over from October at €1,025/mt.
RTi PVC Outlook and Suggested Action Strategies
30 Days: The PVC supply chain has recovered with strong operating rates along with lower feedstock costs and export PVC pricing to reverse the current $0.03/lb increase by the end of the year.
60/90 Days: Supply will improve substantially into early next year as demand will be seasonally slower, allowing for the rebuild of supply from Harvey and further price erosion of $0.01-0.02/lb in the new year. Buy as needed while actively demanding price concessions into 2018.
November feedstock contract prices are mixed, creating a disconnect amongst the PS producers price direction.
▪ The November BZ CP’s firmed upwards, while the BD CP’s firmed downwards.
▪ AmSty announced a $0.02/lb increase for November, but Styrolution is firming at a rollover. This price disconnect should keep November prices static.
▪ The PS market is on precarious ground. More processors are evaluating import material and actively committing NA volume to the import suppliers. Processors have repeatedly complained about prices increasing above RMC, and how elevated the prices are comparative to other polymers.
▪ The October increase was a bit higher than RMC cost, which may be why Styrolution is opting to hold November prices steady.
▪Benzene (BZ): The November contract price firmed at $2.84/gal and $2.87/gal. It is a bit of a surprise the CP didn’t firm closer to the $3.00/gal mark. Spot prices jumped up to $3.14/gal before receding to the $3.00/gal level. There have also been some forward trades back up in the range of $3.14/gal. Prices are expected to come off as supplies improve and demand wanes.
▪ Styrene Monomer (SM): After spot prices spiked in September, they retreated; dropping $0.08/lb on average. Although the November CP has not firmed, we are anticipating the high end of the range to drop as much as 15%. The high range has been questioned for some time as it is not indicative of the market price.
▪ Butadiene (BD): The monthly average spot price is $0.05/lb higher than the previous month, which makes the BD November CP settlement a puzzlement; firming down $0.07/lb ($0.45/lb)
▪ Europe: PS contract prices took a substantial decline of €100/mt in October. Based on the anticipated decline in demand, processors expect November prices to fall even further. They are pausing buying in an attempt to gain additional reductions.
▪ Asia: SM prices are fluctuating incrementally up and down. There is some discussion about the potential SM anti-dumping duties China is set to impose on NA. Talk is it will only be about 3%, which is not significant enough to close the export arbitrage to the Asian region.
RTi PS Outlook and Suggested Action Strategies
30 Days: Buy sparingly. Prices are trending flat.
60/90 Days: Elevated BZ prices could prevent PS prices from coming off over the next few months. If demand has a sizeable retraction, processors could leverage that for reduced pricing. Buy JIT.
Lower feedstock pricing manages to offset supply concerns to keep October PET flat to slightly lower.
▪ M&G has officially filed for chapter 11 bankruptcy protection. Along with unpaid feedstocks from Alpek, M&G also owed more than $60 million to other PET producers. All M&G facilities have halted production and the Corpus Christi build has stopped.
▪ While there are still a decent amount of concerns over PET supply availability from the M&G chapter 11 and potentially reduced imports from antidumping duties, ~$0.005/lb lower raw material cost managed to prevent an increase.
▪ WTI crude oil prices have been hovering just below the $55/bbl mark. Refinery rates continue to inch towards 90%, with last week ending at 88.1%.
▪Paraxylene (PX): PX contracts finally settled at $0.445/lb and $0.43/lb for September and October, respectively. Upstream mixed xylenes have been trekking higher with crude oil prices.
▪ PTA: The formula contract prices for PTA for September and October settled at $0.4486/lb and $0.4398/lb, respectively. Forward outlooks show somewhat stable prices through the remainder of the year.
▪ MEG: One domestic producer has nominated a $0.02/lb decline in November MEG contracts. Another producer is experiencing difficulties with restarting their MEG facility after the Hurricane Harvey shutdowns. MEG inventories in China reportedly experienced a gain this week.
▪ Asia: While feedstock prices are somewhat muted, demand is still in flux as the affects of the antidumping duties (that Japan imposed on China) starts to impact the PET market in Asia.
▪ Europe: Demand in Europe was deemed stable-to-weak. Current expectations are for soft demand until Q1 2018. PET prices were assessed unchanged from last week.
RTi PET Outlook and Suggested Action Strategies
30 Days: Keep an eye on the mixed drivers for November; even lower feeds and slower demand will pull down while supply concerns will push up. As of now, it looks like there could be another decrease if slow demand balances out tighter supplies.
60/90 Days: The struggle between bearish feedstocks and the supply/demand balance will persist through the remainder of the year. Focus on securing resin and push for lower pricing.
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