Weekly Market Drivers for the USA
Several suppliers have indicated they are willing to begin to discuss unpublished price movements in December to secure 2018 market share.
▪ There are no pending PE price increases.
▪ Brokers report some improvement in supplier offers from a few of the smaller suppliers. The major suppliers continue to stay firm with minimal offers.
▪ Non-market and unpublished price movement discussions are beginning as the year ends. Initial numbers are from $0.02-0.03/lb. This is not market wide or resin specific.
▪ Global prices remain firm in line with higher oil prices.
▪ Oil prices declined this week. The Energy Information Administration reported a 5.6-million-barrel draw in crude oil inventories for the week to December 1. Analysts had expected a draw of 3.507 million barrels. But more notably, the American Petroleum Industry yesterday reported a staggering 9.196-million-barrel build in gasoline inventories—when analysts had expected a small build of just 1.145 million barrels.
▪ Ethylene: Spot prices stayed firm this week with one buyer continuing to buy for new start-up ethylene capacity.
▪ Naphtha: Naphtha remained just below $600/mt as oil prices gained strength to $58. Naptha prices remain at a two year high. Oil prices retreated this week and naphtha prices should follow.
Asia: China set an all-time import record of PE in 2017. As a net importer, lower cost imports are keeping their prices low, despite rising feedstock costs in this region.
▪ Latin America: Offers in December are $0.03/lb lower than November. Buyers remain on the sidelines with lower price expectations.
▪ Europe: Suppliers will be attempting to increase December’s price as ethylene settled up about $0.025/lb. Weak demand and good inventories will continue to challenge any price increase.
PE Outlook and Suggested Action Strategies
30 Days: No change from last week: There is a potential of a $0.03/lb decrease in December. Excess supply may not contribute to a December decrease; however, pressure to return a portion of the hurricane increases may contribute to lower prices. 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 30-90 days. Off-grade buyers should continue to manage inventories with intermittent improved pricing.
Propylene markets still await the official start of the Enterprise PDH unit.
▪ US PGP spot prices are trending slightly lower. Current indicators point to a flat to slightly down December contract price. November PGP contracts were settled at $0.49/lb.
▪ The propylene monomer market remains tightly balanced with the market waiting for the Enterprise PDH unit to officially start. Enterprise recently stated they expect start-up to happen by the end of December.
▪ When this PDH unit begins making good pounds and ramping up to rates, we expect that the supply/demand balance will shift and prices will back off. If EPD runs into any issues that prevent making good pounds, the market will remain tight and vulnerable to further price hikes.
▪ Propane prices continue to hover just below $1.00/gal. This puts propylene cash costs from PDH at approximately $0.355/lb.
▪ The polypropylene market is also tightly balanced with Days of Supply at 30.1 days heading into November; however, the market also built about 85 million/lbs.
▪ Availability of secondary market material has been noticeably down this past week. Fewer offers have been seen across all grades of resin.
▪ PP exports out of the US are challenged due to the currently high cost structure.
▪ Spot PGP trades at $0.465/lb.
▪ Spot RGP is valued at $0.36/lb.
▪ Refineries rates on the week were at 93.8% (US) and 94.8% (PADD3).
▪ EIA propylene inventories are steady at 2.57 million/bbl.
▪ Heavier than ethane feeds at the cracker remain uncompetitive, and this continues to hurt propylene supply.
RTi PP Outlook and Suggested Action Strategies
30 Days: The market is feeling a little top heavy, but the direction moving forward is heavily dependent on the start-up of the Enterprise PDH unit.
60/90 Days: We expect the PDH to be running during this timeframe and that prices will start to move lower.
RMC are expected lower in December along with PVC pricing moving below September levels by January 2018.
▪ Export pricing remained below $0.36/lb, although fractionally higher as global demand and price is seeing a bit of upward movement.
▪ RMC moved down by $0.005-0.01/lb in November with a similar reduction expected in December, even with some cracker outages underway as caustic demand continues to drive chlorine production.
▪ October PVC increases are being reversed with contract negotiations taking advantage of lower RMC and low export pricing.
Supply & Demand
▪ Supply: Westlake is in the middle of planned maintenance with restart planned before the end of the year. Supplies are expected to be adequate for this time of year.
▪ Demand: As colder weather has set in and price expectations are bearish, demand will move lower.
▪ Chlorine: Demand is seasonally weak and supplies are improving, creating a minor downward movement in the spot price.
▪ Ethylene: Spot prices stayed firm this week with one buyer continuing to buy for new start-up ethylene capacity.
▪ Asia: Buying activity in Asia has slowed as market participants are awaiting new offers for January. PVC demand in India is still sturdy amidst the post-monsoon season.
▪ Europe: December ethylene contracts settled €32/mt higher at €1,057/mt. Demand is reportedly leaning towards firm. PVC prices are expected to be flat to marginally higher for December.
RTi PVC Outlook and Suggested Action Strategies
30 Days: Operating rates above 90% in November, along with lower feedstock costs and low export PVC pricing, will lead to further price declines. Pressure for reductions of $0.01-0.02/lb below September levels by January. Buy as needed while looking for lower pricing with new purchases.
60/90 Days: Supply is expected to be strong into Q1 as domestic demand will be seasonally slower. Buy as needed while enjoying lower prices to start the new year.
All PS producers have announced a December price increase, taking a strong position regarding implementation.
▪ Although all PS producers have announced an increase, they are not aligned in the value. While Total and AmSty announced a $0.06/lb, Styrolution is targeting $0.05/lb.
▪ The producer’s early justification for the increase spanned BZ to diminishing PS imports. Added to this is the new argument that SM prices have escalated, thereby increasing the PS producers cost. By the end of the week, SM prices did take a significant leap. However, it’s worth noting that even with the price spike, the monthly average price is $0.04/lb lower than the September price point when the PS producers implemented a $0.03/lb increase.
▪ SM supplies could become snug starting Q1 2018 due to planned TAR’s in NA, Europe, and Asia.
▪ Rising freight rates and limited vessels is slowing PS/SM imports and exports to/from the Asian-Pacific regions.
▪ October was a strong demand month but was not truly indicative of the market. Because of logistical issues from the hurricane, and rising PS prices in September, processors tried to secure more material than needed to ensure they would not fall short, and possibly pay a higher price.
▪ Overall sales in 2017 are trending down ~1.5%, relative to 2016.
▪ November supply and demand was pegged as balanced.
▪ Benzene (BZ): December spot prices are bouncy. However, the dynamics which prompted the recent price spike are reversing course. Imports are expected to be prolific by the end of the month, alleviating the supply tightness from the hurricane shutdowns and import delays. Forward bids/offers reflect price levels near the $3.00/gal mark.
▪ Styrene Monomer (SM): After spot prices were pulled higher by BZ prices, they started to display weakness during the week. This weakness was short lived because of anticipated supply tightness from planned TAR’s and an open export arbitrage to Europe. Late in the week, higher priced trades were concluded that were deemed “short-coverings.”
▪ Butadiene (BD): Spot prices “may” have found their price bottom. After receding below the $0.38/lb mark, prices moved slightly upwards this week.
▪ Europe: Bullish BZ prices sent SM prices to a two-month high. Supplies are being built to support the planned SM TAR’s in January, thus creating a short-term supply tightness.
▪ Asia: December SM prices are bullish, but the market is hesitant to commit to January trades until the conclusion of the anti-dumping duties investigation targeting NA.
RTi PS Outlook and Suggested Action Strategies
30 Days: If you do not need to buy, don’t. Weak demand will provide some negotiation strength regarding the December increase, but you should expect to pay some of the increase because of the higher BZ CP.
60/90 Days: Buying interest from China has already begun, which means demand in January could be soft. The only concern is the availability of SM, but this could be offset by the weaker demand. Buy as needed.
PET supply availability will remain a concern heading into 2018.
▪ Spot PET prices have been steady for the past few weeks. Unchanged market fundamentals have kept prices firm at a 2+ year high.
▪ December raw material costs are projected to be slightly higher with increased feedstock contract prices, before heading lower through Q1 2018.
▪ While PET operating rates have been averaging in the high 80’s for 2017, 2018 is likely to see some improvement into the low 90’s to account for the tighter supply situation.
▪ Much like last week, WTI crude oil prices started the week strong at near $59/bbl, but have slid down to $56/bbl by the end of the week. Refinery rates edged 1.2% higher, at 93.8%.
▪ Paraxylene (PX): The US November PX contract settled $0.015/lb higher, at $0.445/lb. The Asian contract price, on the other hand, had a major settlement at $910/mt, which is $90/mt higher than the previous major settlement back in September ($820/mt).
▪ PTA: The formula based contract price for November PTA settled at $0.4498/lb. PTA prices in china have moved marginally higher as market activity increased while inventories are weaker.
▪ MEG: US MEG market fundamentals are balanced, with contracts heard settling +$0.005-0.01/lb range. Bearish expectations kept buyers inactive near the end of November in China, and inventories have been building as a result.
▪ Asia: Demand remains firm as exports to US and Japan have increased from Asian countries outside of China. Both MEG and PTA are starting to see upward movements, which is placing more upward pressure on PET raw material costs.
▪ Europe: A number of supply issues and reduced operating rates have started to lift PET prices in Europe by as much as €10/mt from last week. Market participants are still awaiting a December PX contract settlement.
RTi PET Outlook and Suggested Action Strategies
30 Days: We could easily see a price increase of $0.005-0.01/lb for December PET based on the raw material cost perspective alone. Based on how high spot prices are currently, we could see even more pressure from the market fundamentals front. Buy minimally at December price levels by purchasing at November levels or holding out until downward pressure gains momentum in January/February.
60/90 Days: Current raw material cost outlooks call for at least $0.02/lb of decreases between January and February. Oil prices seem to be drawn to the $55/bbl to $60/bbl price range, which could help minimize volatility in the upstream markets.
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