Weekly Market Drivers for the USA
According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, November contract prices are expected to settle down $0.03/lb. Additional November nonmarket decreases of $0.02-0.03/lb continue to be negotiated.
• Resin markets are on new and uncertain grounds due to some of the following drivers; oil price decreases, weak global demand due to tariffs, and the uncertainty of the tariffs’ impact in Q1 2019. Export LLDPE prices are selling at a ten year low below $0.40/lb.
• Warehouses in Houston are preparing for record year-end export activity. Producers will need to move resin before end-of-year to avoid Texas inventory taxes.
• Domestic commodity off-grade prices are selling below $0.50lb, some LLDPE grades near $0.45/lb. Off-grade prices could reach a bottom if export activity significantly increases in early December.
• Resin availability is ample; expect producers to begin to offer spot contract and off-grade bargains for December ship. Saudi Arabian suppliers are selling out PE production to cover need in China.
• Oil prices fell 22% in November to near $50/bbl. “It was only at the start of October that analysts were wondering if oil would soon cost $100 a barrel. Then a trap door opened and oil prices have been in a rapid descent since, losing nearly a third of their value in about eight weeks, a wild slide that is reminding investors of the great oil price collapse between 2014 and 2016.”
Ethylene: Ethane prices have settled in the low $0.30’s. The average cost of ethane in November was just above $0.32/gal. The cost to produce ethylene is near $0.13/lb. The cost to make a PE pellet is near $0.30/lb, at the integrated producer.
Naphtha: Naphtha fell $100/mt since early November to near $480/mt. Lower prices are contributing to lower ethylene cost in both Europe and Asia. The cost to produce a pellet from naphtha is near $0.48/lb.
Asia: The US is flooding the region with low-cost resin, keeping buyers cautious. Year-end imports will contribute to the downward pressure. The Chinese New Year is February 5, 2019.
Latin America: LLDPE remains at or below $0.45/lb FOB bag Houston. Market activity will slow significantly in the middle of December.
Europe: Supply is ample, demand is flat, and feedstocks prices are weak. Buyers expect a flat December after a $0.02 decrease in November.
PE Outlook and Suggested Action Strategies
30 Days: After the collapse of the November market price, resin strategies will remain the same; buy as needed. Expectations of downward pressure will continue through December. Seek spot opportunities for lower-priced resins from suppliers direct.
60/90 Days: Tariffs, demand, and exports will influence the price environment in Q1 2019. $0.03-0.06/lb increases are historically likely in Q1 due to turnarounds scheduled for both ethylene and PE and depleted inventory due to exports. Suppliers will also try to recapture 2018 Q4 margin losses.
Spot PGP on the decline… round two!
• After stabilizing the past couple weeks in the $0.45/lb to $0.46/lb range, spot PGP unloaded about $0.04/lb in two days. Spot PGP traded Wednesday at $0.425/lb after offers at $0.43/lb attracted no interest. Since then December was being offered at $0.4125/lb.
• WTI crude has been hovering around $50/bbl. Around this number, prices for heavier than ethane feeds (propane, butane, light naphtha) can compete with ethane in the steam cracker. At the moment, ethane has lost its advantage and is the highest cash cost feed, which leads to higher yields of propylene.
• US propylene is already flush. EIA propylene inventories just reported 4.1 million/bbl. If we add in the 1.0 million/bbl that were recently removed from the EIA reporting database, inventories are currently above the 5- year max.
• Global propylene prices are also declining. The arbitrage price for propylene going to Europe, which has been a good benchmark floor price for US PGP, is down to $0.396/lb. We seem to be chasing that number down.
• Propylene is looking for demand as supplies build. The implied contract PGP price for December is roughly $0.44/lb, or down $0.06/lb from November.
• It is not even December yet, so things can change. It’s hard to call the bottom when the floor keeps moving.
• On the polypropylene front, most or all the major PP producers have margin expansion based increases out for December. Most are calling for three cents. The indexes are taking this seriously. The potential is that a portion of it goes through.
• Spot PGP is valued at $0.415lb or lower.
• RGP is valued at $0.295/lb.
• Spot PGP in Europe was seen at €925/mt.
PP Outlook and Suggested Action Strategies
30 Days: December will see another sizable decline which currently looks like $0.06/lb. Even if some margin gets implemented, prices will be down. Good deals are being offered into the secondary markets, although we hear demand has not been that great considering the numbers.
60/90 Days: A lot of variables in play looking forward. Oil at $50/bbl or below is a game changer and the outlook looks completely different if that dynamic holds.
RMC are expected modestly lower in November as global conditions do not support a December increase even with planned maintenance outages in October & November.
• Ethane is higher on natural gas pricing above $4/mmbtu since before Thanksgiving as colder weather and snow has moved through the Midwest and Northeast. Although a modest push on PVC RMC, it also signals a firmer start to the slower demand PVC demand season, offsetting lower production due to maintenance.
• Negotiations for lower end-of-year pricing are on-going as producers try to offset this effort with the increase nomination.
• Oil prices have fallen 30% since the peak in early October as high production levels from the US and a number of other countries supplements continuing supply from Iran as numerous exemptions to sanctions were allowed. This, in turn, had driven global ethylene markets lower.
• Offshore PVC pricing is seeing a modest bounce for December even with low feedstock costs, while US PVC export pricing remains at low levels, with additional pressure from a stronger US$. End of year inventory reduction to export could support firmer pricing in Q1.
Chlorine: Pricing is stable, but outlooks are bearish as we enter the lower demand season.
Ethylene: The monthly average price change is negligible (+$0.005/lb). CP’s are expected to firm lower due to the double-digit delta from spot prices.
Asia: Sturdy demand in India and China kept PVC price assessments stable despite the decline in crude oil pricing. An explosion in an upstream chlor-alkali facility is expected to create some minor supply concerns.
Europe: PVC fundamentals have been leaning towards bullish as demand is healthy and supply is on the weaker side, leading to mixed regional pricing for the week. The market is anticipating a lower December ethylene contract.
PVC Outlook and Suggested Action Strategies
30 Days: Lower end-of-year pricing discussions continue without regard for increase nominations. Focus on lower feedstock costs globally from significantly lower oil, increased margins, strong inventories, and a less robust global demand for domestic exports. Buy as needed until decreases are realized.
60/90 Days: Supply remains balanced as planned outages are offset by lower demand and impacted by lower feedstock costs and a stronger US$. Continue to monitor export pricing and global RMC (oil included). Buy as needed.
Producers, reacting to the BZ price decline, are lowering December prices $0.07/lb.
• At the time of this publication, at least one producer has offered a minus $0.07/lb decrease. The other producers will likely follow.
• Benzene prices have been declining since October, but producers initially refused to acknowledge the decline. However, based on the recent extreme drop, they had no choice. Every feed price is either flat to down, significantly.
• The SM export arbitrage is open with cargoes headed to East Asia. The PS import arbitrage is also open but is slowing down.
Benzene (BZ): BZ supplies are long, demand is subdued, and energy prices are declining at a rapid pace. Imports during October were more abundant than initially projected, plus a $6/bbl one-day drop in CO prices pushed spot prices near the $2.00/gal mark. The import flow may be at an end for the next several weeks as all regions are experiencing price erosion from ample supplies. Ethylene: The monthly average price change is negligible (+$0.005/lb). CP’s are expected to firm lower due to the double-digit delta from spot prices.
Crude Oil (CO): Abundant supply of CO amidst positive rig counts and production flows in NA is prompting investors to urge OPEC to reduce production to stem the price drops. (OPEC is considering production cuts, but quietly to avoid a Trump backlash) Prices shed 23% since October, creating anxiety about the 2019 investment outlook. Last Friday was dubbed “Black Friday” when WTI prices suffered its worst one-day price decline ($6/bbl) in over 3-years.
Styrene Monomer (SM): Spot prices nose-dived, shedding $0.11/lb on average during November supported by the BZ/CO price freefall. Butadiene (BD): CO prices, soft demand, and ample supplies contributed to the $0.10-0.12/lb decline in December CP’s, to a range of $0.50/lb to $0.53/lb.
Asia: SM prices are pushed lower by subsiding CO prices and ample SM supplies. Buying is limited because PS buyers are leery about committing to orders given the current trend in market dynamics.
Europe: BD CP”S firm down €171/t to €1075/t. SM spot prices dipped another $40/t, generating expectations of another potential triple-digit contract price drop. PS prices are eroding too, just not as quickly as the feed prices.
PS Outlook and Suggested Action Strategies
30 Days: Ensure you confirm the decrease with all your suppliers. Be proactive, call them for the price concession.
60/90 Days: If you can score significant price reductions in December, you may want to load up on material. BZ and CO prices will rebound (OPEC already talking production cuts).
November PET prices react to the recent strong bearish market forces ranging from lower crude oil prices to slower demand and improved supplies.
• Spot PET prices have been assessed at a roughly 6-month-low, with market activity anticipating continued price descent through the end of the year.
• WTI crude oil prices fell roughly $5/bbl since the Thanksgiving holiday, with current prices close to $51/bbl. Refinery rates moved to an 11-week-high at 95.6%.
• The recent downturn in crude oil prices has amplified the already bearish overtones in the feedstock markets.
Paraxylene (PX): Lower crude oil prices have joined the ranks alongside improving supplies and weaker demand in putting downward pressure on PX prices. Mixed xylene blending values are becoming less and less favorable as gasoline prices are reaching ~12-month lows.
PTA: Downstream demand remains weak while upstream fundamentals are bearish. While contract pricing for PX and PTA have not yet settled for November, current market sentiment is calling for as much as down $0.10/lb for PX and down $0.07/lb for PTA, with potential for more price erosion in December.
MEG: MEG market conditions almost mirrored those of the PX/PTA supply stream. Domestic contract assessments are poised to move lower as prices in Asia saw several cent-decreases throughout the month. Sources indicate a potential for increased supply availability in Asia in 2019 as capacity expansions come online.
Asia: Low seasonal demand and recovering supply positions kept pulling PET prices lower this week, reacting much more quickly to the overall global market direction than EU or NA. One facility in China will be undergoing a feedstock change during upcoming maintenance in December through January.
Europe: Supplies are set to improve further as a Spanish PET facility is scheduled to return to production before the end of the month. There have been some indications that demand is holding, which is slowing the price descent in Europe, but could open more import opportunities should the gap between European and global PET prices widen.
PET Outlook and Suggested Action Strategies
30 Days: Current RMC outlooks call for another potential $0.02/lb decline in December. Remain persistent in pushing for price concessions as upstream costs have fallen very quickly over the past month.
60/90 Days: Continue to monitor the crude oil markets, as they have been somewhat volatile this month and have already broken many crude oil forecasts from earlier this year. If market conditions hold, we can expect prices to be at or below November levels into early Q1 2019.
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