Weekly Market Drivers for the USA

PE Drivers

According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, December prices settled up $0.05/lb, supported by low inventories and good demand.

Market Overview

Supplier Action: Suppliers announced new increases from $0.03-0.05 for January. Prices increased $0.24/lb in 2020 without any notable feedstock cost increase. Formosa declared Force Majeure January 1st after experiencing an HDPE production outage, restart date TBA.

Secondary Market: Buyers returned to the New Year struggling to cover spot needs. Resin prices continue at the 2020 high mark, following the October and November near-six-month low mark. Brokers report very few offers for off-grade resins.

Export Market: Export activity to China prior to the Chinese New Year in mid-February will be the key indicator of demand and pricing in Q1. North American suppliers will take advantage of any demand for resin. Limited container availability is expected throughout the month.

Braskem-Idesa Update: Braskem-Idesa has partially started LDPE production at their Mexico facility due to natural gas imports. This production will offer smaller volumes for Mexico to be shipped in early February, but there is no update on the duration of the FM.
Inventory: December data is expected next week and will be a leading indicator of Q1 pricing.

YTD Price Change: JAN +$0.03-0.05 pending.

Feedstocks

Crude Oil: OPEC+ leaders have decided to meet monthly to manage production as demand improves with COVID-19 potential economic restarts. Prices this week are at a six-month high after WTI prices reached $50/bbl. Lower production rates and anticipated improved demand due to the COVID-19 vaccine are drivers for the higher prices.

Ethylene: Prices surged $0.12/lb this week with strong demand and continued outages from Hurricane Laura and Delta have reduced availability, moving prices above $0.42/lb. Prices are expected to remain strong or increase further.

Naphtha: Prices start the year at a six-month high near $475/mt and are expected to move higher. Prices are tracking with oil demand and supported by better economic news from China. Cost to produce ethylene is now just above $0.31/lb in SEA, the NA cost is near $0.10/lb.

International

Asia: Demand in January is slower than expected, adding to inventories before the Chinese New Year. Lower imports into China from the US continue to support firmer prices despite the slow demand. Chinese New Year is February 12th, oil prices and demand will be key factors driving prices in Q1 upon the return for the holiday.

Latin America: Buyers turned to the US suppliers to cover needs after the Braskem-Idesa shutdown and FM. LDPE and HDPE are expected to be tight after the Mexican government continues to delay negotiations for a pipeline contract.

Europe: January prices are expected to be higher after the late December feedstock increases and lower-than-average inventories, partially due to plant disruptions in Spain. Higher ethylene costs and COVID-19 related demand concerns continue.

PE Outlook and Suggested Action Strategies

30 Days: Non Market activity is expected after the December increase. The extent of damage and length of the recent Formosa FM and the Braskem-Idesa shutdown will be the key driver to the inventory recovery needed for the market to return to a softer resin price market. Lower inventories have delayed any chance of the expected January price relief. Second-half-of January offers and Chinese New Year demand will be closely monitored.

60/90 Days: The unexpected recent depletion of inventory and continued good demand could extend firm pricing as long as 60-90 days. Chinese New year demand, COVID-19 updates, and updates from the Formosa FM and the Braskem restart will be key to determining the price direction in late Q1 2021. Note: The recently depleted inventories took nearly three months to recover. It is reasonable to expect a three-month recovery under current demand levels.

PP Drivers

Spot PGP moves higher to start the year!

Market Overview

•   The December PGP contract price settled up $0.10/lb to $0.485/lb. $0.04/lb of margin expansion was also implemented in December for a total increase of $0.14/lb.
•   Spot PGP last traded at $0.5925/lb, setting the stage for another $0.10/lb (approximately) increase for the January contract price.
•   Total issued a Force Majeure on December 17th on their supply of polypropylene due to a fire at their LaPorte, TX facility. Total stated this week they expect to resume this line the first week of February.
•   Formosa remains on Force Majeure. They also had a PP line go down unexpectedly in early December. They are on allocation and are expecting to resume production in the first half of February.
•   There are several margin expansion initiatives of $0.05/lb for January. However, Exxon and Braskem issued $0.06/lb increases for February.
•   We believe the January increases will move into February, and January price increases will follow the PGP movement only.
•   The market remains tight for both monomer and polymer. Polypropylene inventories have increased 60 million pounds over the last two months, but days of supply are still at 28.6 days with two unplanned outages.
•   There is some concern building from some converters that they do not have enough resin to fill requirements heading into February.

Feedstocks

•   Spot PGP traded at $0.5925/lb.
•   Spot RGP traded at $0.36/lb and is being reported as very tight.
•   Refinery rates were reported at 80.7%, way below normal.
•   Propane and butane prices are up, and both feeds are priced out of the cracker keeping propylene yields low.
•   We have heard there is propylene being imported from the Far East to North America.

PP Outlook and Suggested Action Strategies

30 Days: December prices were up $0.14/lb. We expect another double-digit increase for January.

60/90 Days: February looks to see more increases, whether feedstock based, margin-based, or both. We think demand destruction is happening and will intensify by the end of the first quarter, finally leading to a market top.

PVC Drivers

FM’s have been lifted in NA as well as Europe to continue the recovery of supply. Export pricing remains high, indicating that improving supplies have yet to make significant inroads on demand.

Market Overview

•   The ethylene contract settled up $0.0225 in December, more than erasing the $0.0125 decrease in November and increasing PVC RMC by more than $0.02/lb. Current escalation of ethylene spot prices from strong demand and some outages suggests that RMC could increase by another $0.025-0.03/lb in January.
•   PVC price increase nominations for January have coalesced at $0.04/lb with some additional nominations of $0.03/lb for February. First indications of the degree of success for the January nomination will be reflected in ACC December supply/demand numbers to be released next week as well as any weakening of export pricing, indicating greater resin availability.
•   Strong production through to March will be key before some planned maintenance takes place at two producers. The restart of EDC and chlor-alkali production in Brazil will also help relieve some export demand.
•   Final November ACC numbers show PVC production +8% MOM and +10% YOY. Calculated inventories increased by 28% MOM, with YOY improving to -20% from -37% in October. Domestic demand fell by 5% MOM, but +22% YOY. Exports took up some slack, increasing 37% MOM from a low base, but -27% YOY. PVC operating rates rose above 80%.
•   Strongest growth segments YOY in November are Windows/Doors, Pipe, and Siding, all showing double-digit growth. Pipe was the volume driver with an increase of 27% YOY, accounting for nearly an additional 100 million-lbs of demand in November.

Feedstocks

Chlorine: Reduced operating rates and sturdy downstream PVC demand pushed chlorine prices higher in mid-October after flat pricing since the last decrease back in March.

Ethylene: Prices surged $0.12/lb this week with strong demand and continued outages from Hurricane Laura and Delta have reduced availability, moving prices above $0.42/lb.

International

Asia: Slower construction demand in India due to colder winter weather has managed to keep PVC pricing stable over the past few weeks, despite steady increases in ethylene pricing.

Europe: The January ethylene contract settled €65/mt higher at €860/mt. PVC demand is torn between pre-existing bullishness, colder winter weather, and new COVID shutdowns.

PVC Outlook and Suggested Action Strategies

30 Days: PVC output/inventory recovery is underway as strong demand continues. Look for indicators of an improved supply/demand balance throughout the month as an opportunity to discount the $0.04/lb increase nomination. Ethylene cost escalation is not helpful. A February increase at this point appears mostly defensive, but another week of activity will help clarify.

60/90 Days: The supply/demand balance will improve in Q1, offering an opportunity for global markets to rebalance with stronger production before March maintenance. Monitor the timing and strength of production recovery globally and inventory recovery domestically. Buy as needed as we look towards pulling back some of the increases by Q2 2021.

PS Drivers

Producers announce a $0.05/lb PS increase for January; Happy New Year!

Market Overview

•   Q4 2020 prices ended on an upward swing (+$0.08/lb). Q1 will continue the trend. The $0.05/lb increase is likely to firm based on the January benzene contract price settlement.
•   Global feedstock prices are retracting. In consecutive weeks SM dramatically declined, BZ followed but at a less pronounced level.
•   Global trading activity on feedstocks is slowing as Asia prepares for the Chinese New Year. During this period, plants shut down, and they may do extended shutdowns due to China’s power outages for environmental control.
•   Supply/Demand: (December ACC data should be released next week).

Feedstocks

Benzene (BZ): January BZ CP’s firmed +$0.39/gal ($2.43/gal), which is the December average spot price. Since October, the escalating prices of SM in Asia propelled NA BZ prices upwards of 40%. January prices are trending 4% lower due to the retraction in the Asian prices.

Crude Oil (CO): (Rigs +3) CO prices are fluctuating on the heels of OPEC’s indecisiveness regarding production output. OPEC was previously encouraged by the NA stimulus package only to lose steam upon the COVID resurgence.

Ethylene: Spot prices ended $0.10/lb higher in December and are trending >$0.05/lb up in January. Supply remains snug amidst cracker outages. The short-term bids/offers are as high as $0.37/lb (2017 levels).

Styrene Monomer (SM): Spot prices are relaxing (down ~7%) upon the declines in the Asian markets.

Butadiene (BD): The January CP firmed up as much as $0.03/lb to $0.49/lb. Spot prices are stable and hovering slightly below the current CP levels. Supply constraints and a vibrant demand is pulling on the supply stream.

International

Asia: SM prices are in a second consecutive week of decline and down $110/mt over the past five weeks. The Chinese New Year should continue to depress the feedstock prices. GPPS prices are declining, with HIPS declining more slowly.

Europe: BZ prices fell $50/mt, supporting stable SM prices after a mild retraction the week before.

PS Outlook and Suggested Action Strategies

30 Days: The December increase was implemented, the January increase is likely to follow based on the RMC escalation.

60/90 Days: If global feedstocks continue to decline, NA PS prices in February have the potential for price erosion. Domestic demand could put a wrinkle in the February price if it outperforms the feedstock declines.

ABS Drivers

ABS RMC for December ends $0.065-0.075/lb higher, with January benzene and butadiene contracts settling up $0.39/gal and $0.022/lb, respectively.

Market Overview

•   Auto sales are projected to finish the year down roughly 15% vs. 2019 as December sales remained strong, but fractionally lower on a SAAR basis than December of 2019. Maintaining strong demand into 2021 will continue to tax resin supply chains.
•   Housing permits as a leading indicator of demand strengthened in November, rising 8.5% YOY and 6.2% MOM. Single-family was steady MOM, but up 22.2% YOY, drawing a sharp comparison with end-of-season 2019.
•   Demand optimism continues to support higher crude oil pricing, with OPEC+ meeting monthly to discuss production levels. WTI averaged just under $50/bbl for the week. Refinery rates have made some steady improvements since mid-December, with last week coming in at 80.7%.

Feedstocks

Acrylonitrile (ACN): The upward climb in export pricing continued through the end of the year, now coming close to six months of consecutive increases due to reduced supplies and firm demand.

Butadiene (BD): After the 13% spike in spot prices at the end-of-November, prices have stabilized. Keep in mind that it not unusual to have a short stable period. Supply remains tight, and demand robust; prices could spike again.

Styrene (SM): Styrolution has some technical issue, forcing them to sell BZ and buy SM on the spot market, resulting in a jump in the spot price. NA SM prices are the highest globally.

Benzene (BZ): Spot BZ prices are >25% than November prices. CO is a mild factor; the global SM price is the primary factor. NA prices are the second-highest region (EU #1), opening the door for exports to the EU.

Ethylene: The spot price is trending >30% higher in December on the heels of supply shortages stemming from delayed cracker restarts and a downstream demand-pull.

International

Asia: Demand ahead of the Chinese New year on February 12th has slowed, which has managed to pull ABS prices assessments lower for the week despite higher feedstock pricing as the market is expected to remain bearish until after the holiday.

Europe: Reduced supply availability and stronger feedstock pricing will support higher ABS price assessments in January.

ABS Outlook and Suggested Action Strategies

30 Days: The cumulative increases in RMC will support upward prices in Q1, so look to hedging by 1-2 months if resin is available.

60/90 Days: Watch for signs of easing of the demand surge along with RMC in Q1 from global auto, E/E, and construction. Global demand is strong but will see hurdles from COVID restrictions and eventual satisfaction of supply chain inventories. Buy as needed.

PET Drivers

December PET RMC ended roughly $0.01/lb higher than November, while January starts the year out strong with expectations of increases in the $0.015-0.02/lb range.

Market Overview

•   Import prices are expected to move higher as buying activity is elevated in Europe and Asia, which, along with higher upstream costs, would lend support for potential price increases.
•   PET recycle demand remains quite strong in California with no weakness in sight, especially in the food-grade markets.
•   Demand optimism continues to support higher crude oil pricing, with OPEC+ meeting monthly to discuss production levels. WTI averaged just under $50/bbl for the week. Refinery rates have made some steady improvements since mid-December, with last week coming in at 80.7%.

Feedstocks

Paraxylene (PX): Mixed xylene blending values have moved in-step with the changes in crude oil, even as gasoline demand has been stagnant from the winter holidays.

PTA: Contract PX/PTA prices could see increases for January based on the current conditions in the upstream markets. Forward outlooks beyond January still show some elevation above December levels.

MEG: December ethylene contracts rose $0.0225/lb, with spot climbing to the low $0.40’s due to increased downstream demand in PE. Domestic MEG contracts are looking a little more stable than the PX/PTA chain. MEG inventories in China fell last week as some facilities were undergoing maintenance, which will keep MEG prices elevated.

International

Asia: Both demand and upstream costs are keeping PET bullish as we close in on the upcoming Chinese New Year on February 12th.

Europe: Shipping troubles ranging from higher costs to various delays have put a strain on PET supplies in Europe, which is only exacerbated by higher feedstock pricing and sturdy buying activity downstream.

PET Outlook and Suggested Action Strategies

30 Days: Higher feedstock pricing and bullish expectations should support upward movement in PET price for January. Focus on securing resin sooner rather than later.

60/90 Days: RMC through the rest of Q1 2021 could start to ease, but demand could remain elevated during this timeframe. Continue to secure resin while monitoring the OPEC+ production and COVID demand and their effects on crude oil demand.