Weekly Market Drivers for the USA

PE Drivers

According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, global markets cautiously return to the market with the impression the bottom has been achieved. North American December contract price expectations remain downward.

Market Overview

•   December contract prices have not been settled, contract price discounts have not been reported.
•   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.
•   Domestic buying has slowed with expectation of downward or flat pricing through January.
•   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.
•   The off grade price delta to contract prices remains near a four year high.
•   January export sales could be reduced due the Chinese New Year in early February, contributing to an inventory recovery.
•   U.S. Energy Information Administration cut their outlook for the 2019 average WTI oil price by 16.4% to $54.19/bbl this week.

Feedstocks

Ethylene: Spot ethylene prices remain near $0.20/lb. Ethane prices have settled in the low $0.30’s. 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 remained at $500/mt with steady oil prices near $0.52/bbl. The cost to produce a pellet from naphtha is near $0.49/lb.

International

Asia: Prices have firmed in the region. Buying is not robust; however, a steady market is expected after sixty days of downward pricing. The Chinese New Year is February 5, 2019.

Latin America: LLDPE offered were concluded below $0.40/lb FOB bag Houston with traders. HMW is trading near $0.50/lb. Market activity will slow significantly in the middle of December. Initial January offers remain at December levels.

Europe: Supply is ample, demand is flat, and feedstocks prices are weak. Buyers have received price decreases of $0.02-0.03/lb for December.

PE Outlook and Suggested Action Strategies

30 Days: Expectations of downward pressure will continue through December. Seek spot opportunities for lower priced resins from suppliers direct. Buyers should not expect lower prices in January.

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

PGP is starting to settle down $0.08/lb to $0.42/lb for December.

Market Overview

•   If the down 8 cent settlement on PGP goes market wide, 2018 closes at the lowest PGP price of the year.
•   WTI Oil prices have been in a range of $50/bbl to $53/bbl.
•   Butane has maintained its advantage over ethane in the cracker feedslate. Propane and light naphtha have bounced in and out being advantaged over ethane but remain close to parity.
•   EIA propylene inventories were reported at 4.44 million/bbl, steady from last week. Inventory levels have gone from 1.8 million/bbl in mid-September to current levels today.
•   Current spot PGP prices are right at the arbitrage price for exporting propylene to Europe. So far, we haven’t seen any cargoes getting booked.
•   Recent ACC numbers for November showed an above average production month that represented at 92.1% operating rate. Demand was 2.2% below the 2018 average. PP Inventories built 49 million pounds and Days of Supply were 33.6 days.
•   Polypropylene imports for October were at a record of 122 million pounds. We believe that strong volumes will be reported for December and possibly January as cargoes arrive. With the recent drop in US prices, new import deals will pull back significantly. That demand will get serviced by domestic producers.
•   Regarding the $0.03/lb of margin expansion that is on the table for December, much will depend on how the indexes report it. The full $0.03/lb will not get implemented, but $0.01/lb or $0.02/lb is still possible.

Feedstock

•   Spot PGP traded this week at $0.3675/lb and $0.375/lb. Since then, the bid/offer was $0.365/lb by $0.375/lb.
•   Spot RGP has been trading at $0.22/lb.
•   Spot PGP in Europe valued at €870/mt ($0.449/lb).

PP Outlook and Suggested Action Strategies

30 Days: December will see another sizable decline which currently looks like $0.08/lb. Secondary markets have been more active with many different grades of material available at nicely discounted prices.

60/90 Days: A lot of variables in play looking forward. We expect a floor to develop over the next 60 days and polypropylene demand to improve into the 1st QTR.

PVC Drivers

PVC export pricing remains at low levels as RMC are projected to remain $0.02/lb below September levels through January with no further PVC maintenance until Q2.

Market Overview

•   Ethane moved down below $0.30/gal this week on pressure from low oil. Low oil supports lower ethylene pricing overseas as the main feedstock outside of NA. PVC pricing in the Asian region remains at lower levels despite recent nominations for higher prices in December and January.
•   Oil prices remain around $52, down 25% from October as production cuts are planned for 2019 and global trade issues soften demand. STEO from the EIA has been reduced below $55/bbl for 2018, which is something to be considered cautiously.
•   The increase nominated for chlorine could offset some of the ethylene-related RMC cost reductions for PVC early next year if accepted, an unusual move for this time of year. The increase is modest to PVC RMC but may signal a firming of Q1 cost.

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: Spot prices have moved very little since September. There are no market dynamics which are affecting the price in either direction.

International

Asia: PVC supplies are on the tighter side as the Chinese government was inspecting PVC plants after an explosion last week. Rising ethylene pricing alongside the reduced production from inspections supported PVC price increases this week.

Europe: Market fundamentals were somewhat mixed this week in Europe as the seasonal slowdown was met with increased buying interest after the recent drops in ethylene spot and contract pricing. Mixed fundamentals with lower upstream costs kept PVC price assessments flat to lower for the week.

PS Drivers

Feedstock prices found some stability this week after weeks of steady declines.

Market Overview

•   Early December, feed prices continued to decline before finding their floor and rebounding mildly higher. That being said, the monthly price averages are still projecting lower than the previous month.
•   RMC in December have the potential to shed another $0.02/lb to $0.03/lb which could put price pressure on the PS producers January offers.
•   The export arbitrage is virtually closed as PS/SM prices globally have been following the NA downward price trends. China and the US have agreed to hold off on raising the tariff levels on $200 million worth of goods. This truce, although temporary, is bringing encouragement to the plastics industry.

Feedstocks

Benzene (BZ): It has been more than two years since BZ spot prices broke below the $2.00/gal barrier. Supply is good, but spot prices are more sensitive to the CO prices. January contract prices are poised to firm below $2.00/gal.

Ethylene: Spot prices have moved very little since September. There are no market dynamics which are affecting the price in either direction.

Crude Oil (CO): OPEC quietly agreed to reduce production by 1.2 mmbpd. NA shale production has been setting new records and is more than capable of offsetting the OPEC cuts. CO prices have not yet reacted to the OPEC decision. There is doubt that all of OPEC will adhere to the cuts.

Styrene Monomer (SM): Spot prices rebounded, moving back above the $0.40/lb mark. Cosmar is down for a planned TAR, putting a mild strain on supply.

Butadiene (BD): Minimal trading this week, keeping prices static.

International

Asia: SM prices rebounded slightly, but it still emboldened PS suppliers to seek higher priced offers. Although there is buying interest, buyers are taking a cautious approach.

Europe: SM dropped €150/mt, prompting PS buyers to seek equitable discounts. Producers have a different mindset, wanting to retain their margins, are only offering about 60% of the SM reduction.

PS Outlook and Suggested Action Strategies

30 Days: First priority is to ensure all your suppliers offered the minus $0.07/lb. Free negotiated buyers should pursue additional concessions based on the full RMC reductions.

60/90 Days: January PS prices could get additional PS price reductions if BZ contracts firm lower. Producers may not proactively offer them, so you will need take the initiative. Continue to buy JIT.

PET Drivers

Reduced PX capacity and a slight rebound in Asia are attempting to counter falling RMC for PET in December.

Market Overview

•   PET feedstock contracts still have room to move lower, as previous settlements had taken place before crude oil prices neared the $50/bbl mark, indicating that RMC for December should come out at an estimated $0.02-0.04/lb lower from November.
•   WTI crude oil prices were quite static this week, hovering between $51 and $52/bbl. Refinery rates moved marginally lower last week, but still at a solid 95.1%.
•   A combination of holiday inactivity and seasonal slowness before the typical pre-buy season is expected to keep market activity quiet through the end of the year, allowing the supply situation to continue to improve.

Feedstocks

Paraxylene (PX): Crude oil price levels that have been staying just above the $50/bbl mark have depressed the mixed xylene blending values for gasoline, allowing maximum feed stream for paraxylene. A major domestic PX producer plans to shut down a 495,000 mt/yr facility by the end of the year, reducing domestic capacity by 10% heading into 2019.

PTA: Domestic contract pricing for the PX/PTA chain still have room to move southward over the next few months. Spot PX and PTA prices in Asia showed bullish indications as market participants were concerned when crude oil prices hit $53/bbl. Crude oil prices have since moved back near $51/bbl, which would make any bullishness short-lived.

MEG: Much like the PX/PTA chain, MEG prices are experiencing downward price pressure from the decline in crude, with bearishness likely to persist into Q1 2019. Inventories in China saw another minor draw due to weather issues.

International

Asia: Upward movements in the PTA stream has supported a recent increase in buying activity this week for PET as many market participants try to acquire resin near the perceived bottom. As a result of the additional activity, PET price assessments moved higher after roughly three months of flat-to-lower pricing.

Europe: After a Force Majeure created some supply concerns last week, PET markets have rebalanced this week. Some traders have even noted that supplies were ample. PET prices moved lower in alignment with the US price direction despite the slight rebound in Asia.

PET Outlook and Suggested Action Strategies

30 Days: PET prices are likely to continue their descent through the end of the year. Buy as needed.

60/90 Days: RMC indications point to further price erosion into Q1 2019, when the market is likely to find the bottom. Be prepared to build inventories during this time to capitalize on some of the lowest priced PET that would be available in the short term.