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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 12/08/2019 (14:34)
PE Drivers

PE markets launched the month silent with new uncertainties regarding new US tariffs set for September. Oil markets and resin demand are observing the potential impact on demand.

Market Overview

Supplier Actions: At least one supplier has announced a $0.04/lb increase for September. The pending $0.03/lb price increase carried over from the previous 6+ months continues with very little discussion. Buyers should continue to challenge suppliers for a June retroactive decrease date of $0.03/lb. Suppliers offered the July $0.03/lb discount August 1st.

Secondary Market: The off-grade market prices remained unchanged from last week. HDPE and LLDPE prices are below $0.40/lb with good availability.

Export Markets: Off grade export transacted in the low $0.30’s with rumblings of even lower prices offered. LLDPE prices are below $0.38/lb bag FOB Houston.

Inventories/Production/Demand: There are no reported PE production issues heading into the hurricane season. Production rates are expected to remain above 90% and inventory levels near 40 days. The Exxon’s fire at the Baytown olefins plant (ethylene & propylene) has the plant closed until an investigation has been completed.

Feedstocks

Crude Oil: Oil prices were steady after a big plunge last week when the U.S. inferred it would hike tariffs on China’s remaining $300 billion worth of imports. A 10 percent levy would hit those goods on September 1. However, a reported build in crude oil inventories sent prices down towards $51/bbl earlier this week.

Ethylene: Trading activity this week was the strongest of the year, moving prices higher to above $0.19/lb due to the Exxon fire and several restart delays.

Naphtha: Prices remained near $500/mt after the crude oil decreases last week. Ethylene prices remain in the mid $0.30’s in the region.

International

Asia: The trade war and new tariffs have slowed Chinese buying activity significantly; threats continue to drive market sentiment. LLDPE prices are reported at or below $0.45/lb in SEA.

Latin America: August offers are down $0.01/lb from July. Most offers are for mid-August due to the packaging delays from the volume in Houston. Commodity LLDPE offers near $0.38/lb bag FOB Houston.

Europe: Buyers with expectations of lower ethylene and PE prices in August returned to the market with higher ethylene prices and are now hoping for a flat August.

PE Outlook and Suggested Action Strategies

30 Days: Expect suppliers to do everything possible to keep prices from declining in August. Demand suppliers to meet the $0.03/lb decrease mis-reported from several industry publications in June to remain competitive. Manage inventories as needed. Anticipate an August price increase letter before the hurricane season.

60/90 Days: Several factors could keep prices flat into the late fall; demand for the agriculture season in SEA, packaging demand in the US for the holiday season, weather, oil price increases, and supplier determination to maintain margins. The impact of new tariffs could have a major impact on plastic demand.

PP Drivers

Spot PGP trades this morning at $0.36/lb!

Market Overview

•   Spot PGP is up about $0.0175/lb from a week ago. It traded this week as high as $0.365/lb on Wednesday. It has traded a couple of times since at $0.36/lb.
•   FHR’s PDH unit went down this week for a repair. The timing of restart is uncertain but is expected to be about a week.
•   Two of ExxonMobil’s Baytown crackers have restarted, one of their flexi-crackers remains down due to damage from last week’s fire.
•   These issues appear to be behind the immediate-term support that PGP is seeing.
•   Exports of propylene were the strongest we have on record at 218 million/lb, according to Census Bureau data; 92 million of it going to Europe, also a record.
•   With spot PGP at $0.36/lb and European PGP also weakening, arbitrages are closed. All this to say that there is downside to US propylene prices once the current supply issues get cleared up.
•   July ACC data was just posted. We will have our monthly report out soon.
•   Production was down. Demand was up, mostly from exports. Inventories were down by 46 million/lb and Days of Supply moved to 35.5 days. It is still a well-supplied market.
•   Polypropylene imports for June were down to 75 million/lb, back down to what we would consider baseline levels.

Feedstocks

•   Spot PGP was last traded at $0.36/lb.
•   Spot RPG was last traded at $0.22/lb.
•   Nymex PGP for August sits at $0.3573/lb.
•   Refinery rates in PADD3 were stronger at 96.7%

PP Outlook and Suggested Action Strategies

30 Days: Current indicators point to a flat settlement for August PGP, give or take a penny. There has been some recent volatility. The next week or two of spot activity can have some influence. PP prices will follow PGP movement.

60/90 Days: We some downside potential for propylene monomer, assuming recent outages clear up. Overall, we expect propylene and polypropylene to remain in the current range.

PVC Drivers

July RMC are expected modestly higher from the ethylene contract when settled. August RMC are expected to see lower chlorine offset a potential increase in ethylene.

Market Overview

•   Final ACC numbers for June indicated a stronger showing for domestic demand at 95% of May but lower for exports at 72%. Weakest segments month over month were film/sheet, distribution & compounding.
•   Export pricing is $0.015/lb lower in August vs. July in response to reduced demand from trade war concerns and lower international pricing. Some outages in Asia could tighten the market in September but will be offset by sluggish demand as the trade war continues to escalate.
•   Ethylene prices moved lower as the impact of the fire at Exxon’s Baytown olefins plant is absorbed by the market.

Feedstocks

Chlorine: Spot prices remain steady, with bullish expectations as we approach the peak demand season from the water treatment sector.

Ethylene: After the knee-jerk reaction from the Exxon fire, spot prices are retreating, albeit gently. The late run-up in prices may cause the July ethylene CP to firm $0.01-$0.02/lb higher.

International

Asia: PVC assessments were flat to marginally higher this week, as many participants await new September offers. The ongoing monsoon season in India was partially offset by favorable changes in exchange rates. Ethylene prices continue to make steady, weekly inclines since late June.

Europe: Summer holidays and a slower construction season reduced buying activity, creating a tepid demand dynamic. However, prices were steady as a €10/mt increase in ethylene contracts for August with rising spot markets managed to keep PVC assessments flat since the start of the month.

PVC Outlook and Suggested Action Strategies

30 Days: The potential for an increase in RMC after the Exxon Baytown fire has eased as the market looks for improved PVC supply statistics from July that will carry through into the Fall with consistent plant operations. Buy as needed.

60/90 Days: Supply will be ample in Q3 with full PVC production allowing for inventory increases. Monitor the strength of demand/trade war and the start-up of new integrated ethylene capacity and PVC capacity.

PS Drivers

Early indications show PS producers are targeting rollover prices for August.

Market Overview

•   Producers cited the BZ price and how it correlated into higher PS cost for the July increase. It bodes the question; why August would be a rollover when BZ prices dropped $0.12/gal, correlating into lower PS cost.
•   Taken into account the decline in demand (June overall domestic demand down 10%) and feedstock prices, August prices should come down. In addition, as stated previously, there remains the $0.02/lb “flood adder” built into the PS price which should come out.
•   By being proactive with rollover prices, producers are shifting the narrative from processors seeking a price decrease, to contentment with stable prices.
•   The trade war escalated this week as China countered the new US tariffs (effective September 1st) by devaluing its yuan to the lowest level since 2008, and by preventing state-owned companies from buying any US agriculture. The potential new 10% tariff increase will include plastic products, according to the ACC.
•   Freight and trucking cost are easing at a rapid pace (-25%). Contributing to the downward shift is a slow freight market and an influx of new drivers.

Feedstocks

Benzene (BZ): August prices are enjoying the benefit of imports, which is creating a better supply position. Spot prices are now below the $2.50/gal range for the first time in nearly two months.

Ethylene: After the knee-jerk reaction from the Exxon fire, spot prices are retreating, albeit gently. The late run-up in prices may cause the July ethylene CP to firm $0.01-$0.02/lb higher.

Crude Oil (CO): The OPEC production cuts are having an interesting side effect; OPEC’s spare capacity is growing. Analysts believe the spare capacity could offset minor disruptions, which is good news, given Iran seized another oil tanker (Iraqi) over the weekend. CO did have a mild jump after the Fed rate cut and an expectation of a supply drawdown.

Styrene Monomer (SM): Stable market. Weak downstream demand is keeping SM supply adequate and prices relatively stable. Prices are beginning to get pressure from a declining Asian market.

Butadiene (BD): As long as propane and butane are favored feeds, BD is enhanced, creating ample supplies that are supporting lower prices.

International

Asia: SM prices are bouncy; one week up, then down. China is influencing the Asian market due to an over-supply position. PS buyers are tepid with their buying, given the fresh round of tariffs and pricing uncertainty.

Europe: August SM CP’s firmed +€33/mt, prompting producers to announce PS increases of €45-50/mt. Robust buying in July encouraged PS producers to limit their price concessions, and, coupled with the SM uptick, raise their August price offers

PS Outlook and Suggested Action Strategies

30 Days: Buyers should not settle for flat prices in August. Based on the July logic from producers that the rise in BZ prices warranted a PS increase, the decline in BZ prices should support a price reduction. Target an $0.03/lb reduction which combines the BZ cost erosion and the flood adder from April.

60/90 Days: Continue to push for lower prices if none were attained in July. HIPS buyers should also pursue a reduction from lower BD cost.

PET Drivers

July PX/PTA settles higher as forward outlooks for feedstock prices turn somewhat bearish as crude oil prices move back down towards the $53/bbl mark.

Market Overview

•   After July PET prices settled higher, recent spot assessments are inching lower due to the combination of slower demand and weaker global PET pricing with competitive imports.
•   WTI crude oil prices managed to fall close to $51/bbl before inching back up near $53/bbl by the end of the week as an unexpected inventory build and reduced demand amidst the US/China trade war was also met with increased tensions with Iran. Refinery rates improved by 3.4% from the previous week, reaching a strong 96.4%.
•   The most recent round of proposed 10% tariff is creating more bearishness for the Asian markets on the demand side for PET as it would encompass many end-use products, ranging from electronics to packaging.

Feedstocks

Paraxylene (PX): July PX settled $0.02/lb higher (reaching $0.46/lb) due to increased costs from June to July. Mixed xylene prices are close to blending value. If gasoline prices move higher, then we could see one of the primary PX feeds move into gasoline production instead of PX production, which would push PX pricing upwards.

PTA: With July PX moving $0.02/lb higher, PTA moved $0.0142/lb higher, reaching $0.4877/lb. Forward outlooks have started to reverse direction as crude oil prices are moderate and we are nearing the end of the summer driving season.

MEG: Decent supply availability with slower downstream demand is keeping the market balanced. MEG conditions in Asia are a bit mixed as inventories in China saw a minor draw, ethylene prices are on the rise, and another round of tariffs from the US/China trade war is creating bearishness.

International

Asia: The combination of continued demand erosion from the US/China trade war and falling feedstock prices are putting downward pressure on PET pricing, with month-over-month estimates down ~11%.

Europe: Most of Europe saw some price stability this week due to unchanged fundamentals with decent imports from Asia. PET prices in the UK saw some increases as a result of a weaker exchange rate instead of any change in market condition.

PET Outlook and Suggested Action Strategies

30 Days: If crude oil prices remain below the $55/bbl mark, we could see June/July pricing extend to August and perhaps even September, prolonging the 2019 low.

60/90 Days: Tariff activity and Middle East tensions are the primary drivers at this time; continue to monitor their developments. Buy as needed, and be prepared to build inventories once forward outlooks become bullish once again.
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