Weekly Market Drivers for the USA

PE Drivers

According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, low inventory, production issues, and exports to Mexico coupled with very strong North American demand are supporting an unexpected January increase of $0.06/lb, and a new increase has rapidly changed the 2021 resin price outlook from lower to higher prices.

Market Overview

Supplier Action: Suppliers amended the earlier new increases for January to be $0.06/lb. At least one supplier announced a $0.07/lb increase for February. Formosa continues under Force Majeure after experiencing an HDPE production outage, restart date TBA.

Secondary Market: Off-grade prices are selling near low prime contract prices. HDPE blow molding and LDPE film grades resins have received the highest increases due to lack of availability. Buyers in need are bidding prices higher daily. Brokers report very few offers for off-grade resins.

Export Market: Almost all export activity is moving into Mexico and Latin America. Traders report very little availability. Continued high oil prices will enable any exports to China or SEA when needed.

Braskem-Idesa Update: Restarted production is expected to meet needs of customers in February. RTi cannot confirm the current percent of production progress.

Inventory: December data is expected later today or earlier next week.

YTD Price Change: JAN +$0.06 pending, FEB +$0.07 pending.

Feedstocks

Crude Oil: WTI prices moved higher with expectations of an additional stimulus package from the new US administration. New announced COVID-19 lockdowns in China and Europe are challenging demand for Brent Crude.

Ethylene: Spot prices steadied near $0.44/lb this week with strong polyethylene demand and extended ethylene production problems. Prices are expected to maintain or move higher from current levels.

Naphtha: Prices move $25/mt higher to near $530/mt, tracking with oil. Cost to produce ethylene is now just above $0.35/lb in SEA, the NA cost is near $0.12/lb.

International

Asia: Demand outlook has changed to poor after over 20 million Chinese have been locked down prior to the upcoming Chinese New Year Holiday. Further or extended COVID-19 lockdowns will have an impact on demand post-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 higher after the late December feedstock increases and inventories reported below average. Europe has supply concerns with three FM’s in the region. Higher ethylene costs and low inventories are driving prices despite new COVID-19 related demand concerns.

PE Outlook and Suggested Action Strategies

30 Days: January prices will be $0.06 higher. Off-grade buyers need to secure resin needs sooner than later. Contract buyers should communicate needs and monitor orders promptly.

60/90 Days: The unexpected recent depletion of inventory and continued good demand will extend firm and higher pricing as long as 60-90 days. Chinese New year demand, COVID-19 updates, updates from the Formosa FM, and the Braskem restart will be key information to determine 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

December polypropylene demand at multi-year highs!

Market Overview

•   December’s domestic demand came in at 50.6 million pounds per day. There is only one month in the past twelve years that has come in higher. It’s remarkable.
•   NA PP production was also reported at the high end, despite several outages. December’s production was about 9.2% above the 2020 average.
•   Inventories were down 7 million pounds, and Days of Supply are now 28.2 days.
•   Total and Formosa both have lines down. They have both indicated they expect to be back up by early to mid-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 margin expansion will be pushed into February.
•   The market remains extremely tight. Many converters are talking about running out of material by February or March if things do not improve.
•   The bigger issue appears to be feedstock propylene. Supply is not meeting demand and will not resolve until we see some serious demand destruction, which is exactly what this market is pricing for.

Feedstocks

•   Spot PGP traded at $0.6025/lb for February.
•   Spot RGP traded at $0.36/lb and is being reported as very tight.
•   Refinery rates continue to run in the 80% range. Gasoline demand would suggest refinery rates will continue to run below historical averages.
•   Even with PGP prices up as much as they are, heavier-than-ethane feeds remain disadvantaged. Propylene supplies are not getting help from crackers or refineries.

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

Preliminary December ACC figures show PVC production rose 5% MOM, nearly even YOY. Demand was up 3% MOM and 2% YOY. Calculated inventory grew 29%, down 21% YOY.

Market Overview

•   Operating rates were calculated over 85% up 4% MOM, although falling short of the 87+% seen YOY.
•   Although FM’s have been lifted in NA as well as Europe to continue the recovery of supply, maintenance at one facility in January is to be followed by two turnarounds in March. Operating rates are nevertheless expected to remain at higher levels as the incentive to produce at current price levels is very strong.
•   Export pricing remains high, with an expectation that improving supplies will make inroads on demand. Initial signs of weakness in some pricing overseas are somewhat hidden by high freight costs and delays in ocean freight.
•   The ethylene contract settled up $0.0225 in December, more than erasing the $0.0125 decrease in November and increasing PVC RMC by $0.018/lb. The current escalation of ethane and ethylene spot prices from strong demand and unplanned outages suggests that RMC could increase by another $0.025-0.035/lb in January.
•   PVC price increase nominations for January have coalesced at $0.04/lb with additional reinforcing nominations of $0.03/lb for February. ACC December supply/demand numbers show that supplies & inventories are improving. The increase nomination for January will be fought over increasing RMC in a strong demand market despite significant margin gains in SEP/OCT. Look for support from lower export pricing in the coming weeks to undercut a full value increase.

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: January begins with a $0.10/lb spike in spot prices. Outages, short supplies, and robust demand are pulling on supplies. Producers, typically sellers of ethylene, are now buyers: This trend is a significant cause of price escalation.

International

Asia: PVC pricing throughout Asia was mixed this week, as colder weather signals a slowdown in construction demand in India, but increases in ethylene prices and shipment issues pulled prices upwards in SEA.

Europe: Supply conditions have worsened as import volumes from Asia are subdued while demand is firm.

PVC Outlook and Suggested Action Strategies

30 Days: PVC output/inventory recovery continues as domestic demand eases. Look for lower import pricing in the coming weeks as an opportunity to discount the $0.04/lb increase nomination. Ethylene cost escalation is not helpful. The February increase is mostly defensive.

60/90 Days: The supply/demand balance will improve in Q1, allowing 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

Polystyrene producers will successfully implement the January increase.

Market Overview

•   The January increase gained support from the higher feedstock contract price settlements, not demand.
•   From an RMC change perspective, it does support past and present increases. Since the start of Q4, the RMC is up ~$0.15/lb; PS increases were $0.13/lb during this time. Based on this data, another increase in February is probable.
•   After consecutive weeks of price retraction, global BZ and SM prices had stout increases this week. BZ prices on average rose $30-60/mt, SM had the largest gains of $60-90/mt.
•   Freight surcharges are not the only problems facing buyers; equipment and driver availability is a bigger problem, along with drivers canceling pickups at the last minute because they received a better offer. Clients are reporting having to pay extra to ensure they receive their shipments. Price is not the priority at the moment; securing delivery of the material is the priority.
•   Supply/Demand: Supply is adequate, and demand is average for this time of the year. The ACC data should be released within the next few days. The appliance sector was a boost for PS as their demand jumped up 158% in Q4 2020.

Feedstocks

Benzene (BZ): Spot prices in 2021 continue a familiar pattern of stout run-ups followed by stout retractions. 2021 began with a $0.16/gal dip before ramping back up to current levels. The current average price is trending $0.10/gal higher in January.

Crude Oil (CO): (Rigs +9) OPEC came to an interesting production agreement, to say the least. Some members are granted a production increase, while others are asked to reduce their production, resulting in a CO price boost before getting stalled by a resurgent COVID and increased lockdowns.

Ethylene: January begins with a $0.10/lb spike in spot prices. Outages, short supplies, and robust demand are pulling on supplies. Producers, typically sellers of ethylene, are now buyers: This trend is a significant cause of price escalation.

Styrene Monomer (SM): Spot prices are stable. However, this stability will be challenged due to the recent spike in Asian SM pricing.

Butadiene (BD): After three weeks of stable prices, they inched up ~$0.03/lb this week.

International

Asia: BZ prices inched +$30/mt while SM prices surged $90/mt. The mild BZ increase was only partially responsible for the rise in SM; the lack of supply is. Prices are now back to the levels seen five weeks ago.

Europe: BZ and SM prices are +$50-90/mt, being pulled by the Asian prices.

PS Outlook and Suggested Action Strategies

30 Days: The BZ CP solidifies the January increase. Buy a little more than is needed.

60/90 Days: RMC escalation outpaces the PS price increases, which could set the stage for a February increase if BZ prices do not abate.

ABS Drivers

January RMC starting at a $0.025-0.055/lb increase over December, reaching more than $0.20/lb worth of cumulative gains since the 2020 low in May.

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 6-month incline of export ACN prices stalled this week as pricing seemed to have caught up to the stronger downstream demand.

Butadiene (BD): After three weeks of stable prices, they inched up ~$0.03/lb this week.
Styrene (SM): Spot prices are stable. However, this stability will be challenged due to the recent spike in Asian SM pricing.

Benzene (BZ): Spot prices in 2021 continue a familiar pattern of stout run-ups followed by stout retractions. 2021 began with a $0.16/gal dip before ramping back up to current levels. The current average price is trending $0.10/gal higher in January.

Ethylene: January begins with a $0.10/lb spike in spot prices. Outages, short supplies, and robust demand are pulling on supplies. Producers, typically sellers of ethylene, are now buyers: This trend is a significant cause of price escalation.

International

Asia: The ABS market is somewhat better supplied but remains tightly balanced as demand is strong, particularly in auto/appliance/EE.

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

ABS Outlook and Suggested Action Strategies

30 Days: Tight supply/demand balance combined with higher RMC supported the implementation of ABS price increases and will potentially generate more. RMC advantages YOY have vanished. Order planning remains key.

60/90 Days: Look for downward adjustments in RMC first and demand later as markets adjust to a re-opening economy from vaccination. Global demand is expected to ease by Q2 as downstream supply chains recover. Monitor the PA66 supply chain.

PET Drivers

Positive demand outlooks and rising upstream costs lend support for a PET price increase for January.

Market Overview

•   The combination of increased buying activity alongside rising feedstocks pushed import PET pricing higher over the past few weeks, while current conditions are more quiet with uncertainty in the shipping markets.
•   Recycle demand in California, Mexico, and the US Midwest are reportedly firm while feedstock supplies are tight. Bullish fundamentals are keeping recycle grade PET prices on an upwards trajectory.
•   The demand optimism surrounding the release of the COVID-19 vaccine managed to pull WTI crude oil prices to around $53/bbl by the end of the week. Refinery rates grew 1.3% higher, reaching 82% last week.

Feedstocks

Paraxylene (PX): Mixed xylene spot prices have been on the rise since early November, when WTI crude oil prices were back in the $40’s. With crude oil prices at nearly $10/bbl above the December average, PX prices in Asia are on an incline, also supported by positive downstream demand in PTA.

PTA: While January PX/PTA contracts are still unsettled, market participants are calling for increases ranging from $0.04-0.08/lb based on the state of PET demand globally and climbing crude oil pricing.

MEG: Spot ethylene prices have climbed more than $0.10/lb since the start of the month. Upcoming maintenance in Asia around the Lunar New Year is creating some bullish expectations on supplies, supported by a reported decrease in MEG inventories in China, resulting in increases in MEG pricing in Asia.

International

Asia: Pre-Lunar New Year buying activity continues to be strong, while upstream costs are on the rise. Both packaging and textile demand are bullish on the positive outlooks from the COVID vaccine.

Europe: Bullish PET markets in Asia, alongside prolonged elevated shipping costs, are putting upward pressure on PET in Europe.

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: Q1 outlooks are now more bullish, with prices expected flat or higher through Q1 and into Q2. Continue to secure resin while monitoring the OPEC+ production and COVID demand and their effects on crude oil demand.