Weekly Market Drivers for the USA

PE Drivers

According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, export activity increased this week as global buyers sense that the price may have reached a bottom and tariff relief negotiations commence.

Market Overview

•   All PE prices settled down $0.03/lb in November. Additional non-market decreases of $0.02-0.03/lb in November have been confirmed.
•   Resin traders are aggressively seeking lower export prices as suppliers look to deplete inventories by year end.
•   Off-grade offers continued near November prices; LLDPE butene and HDPE blow molding prices are below $0.45/lb. Activity is expected to continue until suppliers have reduced inventories.
•   Q1 tariff negotiations could change the PE outlook in Q1 as relief is expected. China’s Commerce Ministry in a statement Wednesday acknowledged for the first time that Beijing on Saturday agreed to a 90-day cease-fire to allow negotiations to take place. The statement, attributed to an unnamed spokesman, said that the negotiations have a “clear timeline and road map” and that China aims to quickly implement “an agreed upon consensus.” Source: WSJ
•   Oil prices remained in the low $50’s this week. Members of the Organization of the Petroleum Exporting Countries have concluded their meeting in Vienna, without deciding on output-cut figures, the Wall Street Journal reported.

Feedstocks

Ethylene: Ethane prices remained 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 moved up $20/mt at $500/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.

International

Asia: Prices steadied this week, allowing buyers to return to the market. The Chinese New Year is February 5, 2019.

Latin America: LLDPE offered were concluded below $0.40/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 have received price decrease of $0.02-0.03/lb for December.

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.

PP Drivers

December propylene contracts poised for another sizeable decline.

Market Overview

•   WTI crude oil prices, although somewhat volatile, have been staying in the low $50’s, which has allowed heavier feeds to enter the feedslate at the steam cracker. Favored feeds have been shifting on a near-daily basis, however. Heavier feeds yield more propylene than lighter feeds.
•   If crude oil prices remain close to these levels, we can expect propylene supplies to improve.
•   Polypropylene imports have been deemed limited.
•   The implied contract PGP price is at a range of down $0.07-0.09/lb, at $0.41/lb to $0.43/lb.
•   There are pending margin expansions at play for December polypropylene, from most or all major producers. Current estimates are for three cents, and there is a strong possibility that some of it will go through.
•   US refinery rates are holding steady near the 95% mark, with PADD3 increasing 3.7% over the previous three weeks.
•   EIA propylene inventories reported another build of 334 thousand barrels, reaching 4.45 million/bbl, and currently above the 5-year-high.

Feedstock

•   Spot PGP traded at a $0.375-0.385/lb range.
•   RGP traded at $0.24/lb.
•   Spot PGP in Europe is valued at €870/mt.

PP Outlook and Suggested Action Strategies

30 Days: December is poised for another sizable decline which currently looks like $0.06/lb. Margin expansion attempts are still on the table, but even so, the cumulative past two months’ worth of decreases would near $0.16/lb. Good deals are being offered into the secondary markets, although we hear demand has not been that great considering the numbers.

60/90 Days: Crude oil prices are going to be a major price driver in the next 60 to 90 days, mainly as a result of levels that are just within the profitability range for heavier feeds, although there are a lot of variables in play looking forward.

PVC Drivers

RMC are down nearly a penny in November as ethylene contract fell $0.02. Further erosion is expected in December but potentially offset by chlorine increases nominated in December.

Market Overview

•   Ethane reversed lower on low oil, still subject to volatility as OPEC has apparently announced production cuts to support oil pricing. This will keep offshore ethylene pricing active.
•   An increase nominated for chlorine could offset some of the ethylene-related RMC cost reductions early next year if accepted, an unusual move for this time of year perhaps designed to secure gains while ethylene is moving lower.
•   Although a modest push on PVC RMC, it may signal a firming of Q1 cost.
•   Negotiations for lower end-of-year pricing are on-going as producers try to condition this effort with an unlikely to succeed increase nomination.
Feedstocks
Chlorine: Two producers were heard announcing price increases in a +$40-60/st range, which was surprising to many market sources who expected price increases closer to the start of the higher demand season in H1 2019.
Ethylene: Despite ethane prices shedding nearly $0.20/gal, ethylene prices proved resilient in holding firm. Supplies are good but remain cramped because of pipeline constraints.

International

Asia: Forward PVC offers are on the rise due to bullish sentiment after a plant explosion last week in China. Current price assessments are steady. Demand is expected to increase as buyers build inventories in January ahead of the Lunar New Year holiday in early February.

Europe: PVC prices are steady as many market participants are monitoring the supply situation settle in China. The lower water levels of the Rhine river continues to restrict the petrochemical stream in Europe. December ethylene contracts settled €110/mt lower at €1,025/mt, with spot prices steady near €800/mt.

PVC Outlook and Suggested Action Strategies

30 Days: Lower end-of-year pricing discussions are progressing 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 minimal feedstock cost pressure and a stronger US$. Continue to monitor export pricing and global RMC (oil included). Buy as needed.

PS Drivers

The daily feedstock prices continued their backward trek this week but could reverse course if energy prices rebound.

Market Overview

•   Feed prices have yet to find their price bottom, but as WTI and Natural gas prices rebound, the feed prices will follow.
•   PS prices in December for both monthly negotiated and formulas-based buyers declined on par with the drop in BZ CP’s.
•   The RMC net change since December is minus $0.09/lb; the PS net change is minus $0.05/lb. The December PS decrease falls short on capturing the entire RMC movement.
•   PS supply/demand is balanced, and exports of PS and SM is muted due to lower prices and ample supplies in other regions. The November ACC preliminary inventory data should be released next week.

Feedstocks

Benzene (BZ): Spot and CP’s are trending close to breaking below the $2.00/gal price point, a mark not reached in almost four years. Contributing factors:

-   Freefalling CO prices
-   Ample BZ supplies due to robust import levels
-   Muted demand pulls from downstream derivatives
-   Ample supplies and eroding prices in the other regions

Ethylene: Despite ethane prices shedding nearly $0.20/gal, ethylene prices proved resilient in holding firm. Supplies are good but remain cramped because of pipeline constraints.

Crude Oil (CO): Iran is threatening to cut off oil exports from the Gulf, sparking a $2/bbl price bounce-back on CO. US production set a new output record of 11.43 mmbpd.

Styrene Monomer (SM): Spot prices are being pulled lower by eroding BZ prices, limited exports, and a balanced supply position.

Butadiene (BD): The price bottom has not been established yet as spot prices took another big hit this week, shedding $0.05/lb. Energy values and muted demand are the price catalyst.

International

Asia: China is oversupplied on SM, creating a ripple effect of eroding prices throughout SEA on SM and PS.

Europe: PS contract buyers successfully secured triple-digit decreases in November. December SM dropped €150/mt, creating cautious buying overtones in PS.

PS Outlook and Suggested Action Strategies

30 Days: Lower end-of-year pricing discussions are progressing 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 minimal feedstock cost pressure and a stronger US$. Continue to monitor export pricing and global RMC (oil included). Buy as needed.

PET Drivers

PX and PTA contracts for November settle lower, with additional room for more downward movements in December.

Market Overview

•   Based on current outlooks, December RMC could move another $0.02-0.04/lb lower.
•   The weekly average WTI crude oil price moved roughly $1/bbl higher, but week-over-week prices were relatively static.
•   Total PET import volumes from August to September increased by ~12.8 million pounds (+7%). Each of the countries targeted by the May 2018 round of antidumping duties, which was ruled against back in October, saw notable increases.
•   Pakistan, in particular, saw increased export volumes into the US by 7 million pounds, which is more than double from August.

Feedstocks

Paraxylene (PX): The November PX contract settled $0.085/lb lower at $0.57/lb, which is the largest drop in contract price since the start of the crude oil price collapse back in October 2014. While crude oil prices have edged slightly higher week-over-week, monthly averages are notably lower and support continued price erosion.

PTA: November PTA fell by $0.057/lb at $0.5436/lb. Upstream costs are bearish while downstream PET demand is at seasonal lows. Maintenance at one facility in China did not slow supplies enough to affect pricing as supplies continued to outpace demand in Asia.

MEG: MEG market participants are focused on the crude oil situation. China experienced a minor decline in MEG inventories, which has some MEG spot assessments at a slight increase, but overall sentiment remains bearish.

International

Asia: The minor bump in crude oil prices have slowed the recent bearish nature of the PET markets in China, prompting some increased buying activity as participants sought to acquire product while prices were at the perceived bottom. PTA supplies have been deemed on the tighter side due to maintenance.

Europe: One PET facility in Rotterdam has declared Force Majeure, creating some supply tightness as well as supporting a minor increase in spot PET pricing. Supply tightness is expected to last through the length of the recovery for the facility, which is expected to restart in January.

PET Outlook and Suggested Action Strategies

30 Days: PET prices should be nearing their bottom for 2018 and perhaps 2019. Be prepared to replenish inventories at November or December pricing levels.

60/90 Days: Most crude oil analysts do not expect prices to remain below the $55/bbl mark for long. PET prices have the potential to trend higher through Q1 2019 during the typical pre-buy season and if crude oil prices move higher. Buy sooner rather than later as a hedge against potential increases in Q1 2019, as we are likely near a price trough.