Weekly Market Drivers for the USA

PE Drivers

According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, North American December contract price is expected to settle down $0.03/lb. Price negotiations could rollover into the first week of January.

Market Overview

•   December contract prices have not been settled. At least one supplier has offered a $0.03/lb discount for December.
•   Suppliers issued pricing notification letters; Nova rescinded their previous failed attempts and annnouced a new January $0.05/lb increase, LBI combined several failed attempts and also announced a new increase, resulting in a $0.06/lb increase for January and a new $0.04/lb increase for February.
•   Off-grade offers continued near November prices; LLDPE butene and HDPE blow molding prices are below $0.45/lb. Activity is expected to be discontinued in January and price offers are expected to be higher.
•   Oil prices tumbled more than seven percent on Tuesday, falling to their lowest levels in more than a year, after investors learned that Russia and the United States were pumping a lot more oil than had been expected.
•   2018 January to 2018 December Market Changes:
LLDPE -$0.05/lb Oil             (WTI) -$12/bbl
HDPE +$0.01/lb             Spot Ethylene -$0.08/lb
LDPE -$0.02/lb                Ethane +$0.10/gal
HDPE Non-Market -$0.06/lb          PE Cash Cost $0.04/lb
LLDPE Non-Market -$0.03/lb          Naphtha -$200/mt
SEA LLDPE -$0.04/lb

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 $50/bbl. The cost to produce a pellet from naphtha is near $0.49/lb.

International

Asia: Prices have firmed in the region. Lower cost US imports will begin to arrive and will keep prices from increasing. The Chinese New Year is February 5, 2019.

Latin America: LLDPE offers were concluded below $0.40/lb FOB bag Houston with traders. Initial January offers remain at December levels and price increases are not expected to materialize.

Europe: Buying activity in the region has concluded for the year. Buyers have received price decreases of $0.02-0.03/lb for December. Buyers anticipate steady prices in January.

PE Outlook and Suggested Action Strategies

30 Days: Buyers should not expect lower prices in January. Suppliers will seize any opportunity to increase prices.

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. The February Chinese New Year could impact late Q1 demand.

PP Drivers

PGP settled market-wide at $0.42/lb, down $0.08/lb from November!

Market Overview

•   December PGP could have easily settled down another $0.02/lb, but because it did not, January looks like it could pick up those couple cents.
•   We will have to see where spot PGP goes from here. It feels like propylene is finding some support at current levels.
•   Spot PGP values are up about $0.01/lb, and RGP was bid at $0.25/lb, which is up by $0.03/lb.
•   The arbitrage price to move propylene to Europe is roughly $0.37/lb. We have heard that one small cargo to Europe has been booked. Although this does not do a lot to clear the abundance of propylene, it does offer support. The European arbitrage price has been a good indicator of a US PGP floor price.
•   EIA propylene inventories were reported higher again to 4.66 million/bbl. We are hearing there has been a lot of hedging activity. So, at least some of this inventory is spoken for. The secondary markets for polypropylene have been active. Volumes started to move in the 2H of December. Prices were nicely discounted which helped to move product.
•   Polypropylene imports for October were at a record of 122 million pounds. We expect import volumes to start coming down in 1Q and expect that demand to be picked up by US producers.
•   The $0.03/lb margin expansion for December was not successful. We expect both major indexes to report zero margin expansion for December.

Feedstock

•   Spot PGP is valued at $0.3825/lb.
•   The NYMEX PGP price for December is $0.3779/lb.
•   Spot RGP is bid at $0.25/lb.

PP Outlook and Suggested Action Strategies

30 Days: December PGP and PP are both down $0.08/lb. We expect that January will be flat to down $0.02/lb

60/90 Days: The market looks like it could be finding a bottom. Watch demand trends in the new year. Strong demand will clear excess monomer, and prices could see a bounce.

PVC Drivers

PVC production in November was down 4% as demand was down 6%, mostly from domestic demand as exports remained flat (ACC). Calculated inventories fell 4%.

Market Overview

•   PVC production fell due to a significant planned outage in November. Production is expected to pick up by January.
•   Export pricing remains under $0.35/lb as global markets are well supplied and softer in terms of demand, some seasonal and some based on economic/trade concerns. Increases are being suggested for January.
•   Ethylene contract settled down $0.02/lb in November with chlorine flat, dropping raw material costs for PVC by a penny. December is expected flat to down in the ethylene contract as the ethane component continues to fall from lower oil.
•   PVC market prices are expected to report flat for December as contract discounts for 2019 are not reflected in general market movement.
•   Demand for PVC continued softer as November housing starts fell 3.6% YOY with multifamily starts up 22% but single family falling a substantial 4.6% MOM. Permits were up fractionally in November YOY. The housing market has been hit by higher costs including interest rates.

Feedstocks

Chlorine: Besides the announced $40-60/st contract price increases from two major producers, chlorine markets have been stable, and pricing has been flat.

Ethylene: Spot prices appear to be resilient to the fall in ethane prices. Spot prices have remained static for nearly four consecutive months.

International

Asia: Slower production after the plant explosion from earlier this month coupled with decent demand supported flat to higher PVC price assessments this week.

Europe: Reduced buying activity was met with shorter supply availability, creating a somewhat balanced fundamentals position. However, lower ethylene prices could be enough the pull PVC prices downwards.

PVC Outlook and Suggested Action Strategies

30 Days: Focus price negotiations on lower feedstock costs globally from significantly lower oil prices and margin gains earlier in 2018. PVC supply will be strong as maintenance has ended for the near term with less robust demand due to seasonal reductions and global economic concerns. Buy as needed until decreases are realized.

60/90 Days: Supply remains balanced as maintenance is offset by lower demand both seasonal and from economic uncertainty. Minimal feedstock cost pressure and a stronger US$ is expected to start 2018. Monitor export pricing and global RMC from oil.

PS Drivers

PS buyers received an early Christmas gift with a $0.07/lb decrease announcement!

Market Overview

•   From a feedstock perspective, dropping prices $0.07/lb is legitimate. Surprisingly, producers didn’t hold some back in the hopes the market dynamics would change.
•   The fact that energy values and most feedstock prices continue to erode means January PS prices could be in jeopardy of declining even further.
•   Energy values are poised to be hammered even lower as global oil producers begin cranking out record production levels. North America has hit multiple record production levels this year, now Russia is indicating they too will hit record levels in production. All at a time when one of the largest consumers’ (China) economy is projected to take a downturn.
•   The Preliminary ACC data reported as follows:
-Total Sales and Demand, both down 12%
-Exports down 29%
-Operating rates flat

Feedstocks

Benzene (BZ): The December monthly average price is already trending $0.20/gal lower. January CP’s are on the verge of firming below the $2.00/gal mark for the first time since early 2016. Weak draw on inventories, coupled with declining CO prices, is sustaining the downward BZ price trend.

Ethylene: Spot prices appear to be resilient to the fall in ethane prices. Spot prices have remained static for nearly four consecutive months.

Crude Oil (CO): OPEC agreeing to production cuts could not thwart the 7% price plunge this week on the heels of investor worries about oversupply.
Styrene Monomer (SM): Spot prices are supported mildly higher on the heels of lower SM production due to some planned TAR’s. However, prices remain nearly $0.02/lb below the previous month’s average.

Butadiene (BD): No trading, prices are static. The monthly average price is trending $0.09/lb lower than November, leading to another downward contract price for January.

International

Asia: As SM prices are lifted higher, PS sellers opt to lift their price offers too. However, buyers are showing resistance and rejecting all offers, not believing the SM price rebound will be sustainable.

Europe: The Rhine River is slowly getting back to normal. Vessels can traverse the river, but not at full capacity. SM spot prices are being pulled slightly higher by Asian prices and from PS from buyers wanting to take advantage of special deals.

PS Outlook and Suggested Action Strategies

30 Days: All suppliers confirmed down $0.07/lb. Buy as needed as January may afford additional price concessions.

60/90 Days: The PS price bottom may not have been reached. As long as feed and energy prices continue their backward trek, PS prices will be pressured lower. Watch feed prices; as they begin to rise, that will be your cue to start buying again.

PET Drivers

Crude oil prices move below the $50/bbl mark as a result of increased US production, extending the bearish outlooks for PET and feedstocks further into Q1 2019.

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 averaged below $50/bbl this week, bottoming out at just below $46/bbl. Refinery rates were 0.3% higher from the previous week at 95.4%.
•   Overall market activity has slowed this week as many participants are leaving for the winter holiday season. The seasonal trough in demand occurs between the height of the summer bottling season and the height of the pre-buy season.

Feedstocks

Paraxylene (PX): Lower crude oil prices ensure that the mixed xylene blending values are well below profitability. Supplies in Asia are likely to improve after a few facilities in China are expected to start near the start of 2019, which would further contribute to the bearish state of paraxylene pricing at the moment. There are still domestic supply concerns after the announcement of a permanent shutdown of one major PX facility heading into 2019.

PTA: December PX/PTA contracts have yet to settle, but expectations are for decreases in a $0.02-0.04/lb range. PTA prices in Asia resumed their downward trajectory after WTI crude oil prices fell below the $50/bbl mark but tempered by supply availability leaning towards the tighter side.

MEG: MEG prices are bearish due to weaker upstream costs and slower downstream demand. Inventories in China were somewhat stable, and fundamentals were mixed, creating some short-term stability in pricing with some expectations of continued downward movements through Q1 2019.

International

Asia: Slower demand amidst lower crude oil pricing kept PET price assessments lower, but with limited trading activity. Demand is expected to improve ahead of the upcoming Chinese New Year in February.

Europe: PET prices fell this week as global sentiment is bearish while crude oil prices are volatile. Lower priced imports from Asia are likely to continue the downward pressure heading into the new year.

PET Outlook and Suggested Action Strategies

30 Days: January could easily see additional downward price movements. Buy as needed but be prepared to build inventories as we are approaching the market bottom.

60/90 Days: Based on current outlooks, we could see RMC declines through February and maybe even March before they trek back upwards. Volatility in the crude oil markets will be a key factor to monitor for directional pricing during this timeframe.