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Weekly Market Drivers for the USA

by ChemOrbis Editorial Team - content@chemorbis.com
  • 25/01/2021 (09:17)
PE Drivers

According to Resin Technology Incorporated’s (RTI) weekly market driver report for plastics processors, resin prices are looming near the historic peaks of 2005, 2008, and 2014 when all commodity resin prices exceeded $0.70/lb during those years.

Market Overview

Supplier Action: It is appearing certain that suppliers will implement the January increases of $0.06/lb. Several suppliers announced a $0.07/lb increase for February. Formosa continues under Force Majeure after experiencing a second HDPE production outage this week and is expected to be down at least 10 days. Some Formosa customers have been notified of potential supply concerns.

Secondary Market: Off-grade prices are selling near or above the 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: Suppliers are bypassing trader bids as North American prices and demand are more attractive than export with current low inventories. Continued high oil prices will enable any exports to China or SEA when needed after the Chinese New Year.

Braskem-Idesa Update: New information shared from market sources in recent contact with Braskem salespeople reported PE production rates at less than 15%. If this information is correct, it is not likely production will meet the needs of customers in February.

Inventory: December data has been delayed and is expected next week.
YTD Price Change: JAN +$0.06, FEB +$0.07 pending.

Feedstocks

Crude Oil: Oil producers are preparing for better demand due to the expectations of short-term stimulus from the new administration. New announced COVID-19 lockdowns in China and Europe continue to challenge the demand for Brent Crude. Brent prices have moved 10% higher in the past 30 days.

Ethylene: Spot prices showed relief this week and traded down near $0.41/lb this week. Strong polyethylene demand continues and some of the extended ethylene production problems are being resolved. Prices are expected to be maintained through the quarter.

Naphtha: Prices remained unchanged this week near $530/mt. Cost to produce ethylene is now just above $0.35/lb in SEA; the NA cost is near $0.12/lb. Post-Chinese New Year demand and COVID-19 shutdowns in China will be the key drivers in late Q1 into Q2.

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 rather than later. Contract buyers should communicate needs and monitor orders promptly.

60/90 Days: The second increase of 2021 could put pricing as much as $0.13/lb higher by the end of Q2. The unexpected recent depletion of inventory and continued good demand will extend 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

PGP trades at $0.6625/lb, up $0.06/lb on the week!

Market Overview

•   January inventories were down 7 million pounds, and Days of Supply are now 28.2 days.
•   Total, LBI, Formosa, and Ineos are now in Force Majeure, with a recovery anticipated by early to mid-February.
•   Braskem, Ineos, LBI, and Exxon have $0.06/lb margin expansions for February.
•   LBI is continuing with a $0.05/lb expansion for January, but there is some doubt on its success due to the other producers not following through.
•   Import volumes of PP were 120 million pounds in November and will be flat to higher through the first quarter of 2021.
•   Import volumes of PP should continue to see improvement due to a growing arbitrage with Asia despite increasing freight costs.
•   The market remains extremely tight. Many converters are talking about limiting production on some lines in February or March if things do not improve.

Feedstocks

•   Spot PGP traded at $0.6625/lb for February, a $0.06/lb increase from last week.
•   Spot RGP traded at $0.38/lb and is being reported as very tight.
•   Refinery rates were last seen around 82%. While 82% for US is a 20-week high, it is still roughly 8% below the 2019 average.
•   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

Ethylene spot fell in the past week as supply/demand balanced, falling $0.07/lb while ethane also gave up $0.0175/lb, reducing the expected PVC RMC increase to $0.015-0.025/lb.

Market Overview

•   Housing permits increased 4.5% in December MOM and 17.3% YOY concentrated in single-family home demand. Starts also increased despite the winter season, up 5.8% MOM and 5.2% YOY according to the US Census Bureau.
•   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. Operating rates were over 85% up 4% MOM, falling short of the 87+% seen YOY. ACC figures by segment for November noted a sizeable MOM increase for Window/Door, but down in siding and pipe.
•   FM’s have been lifted to continue the recovery of supply. Maintenance in NA at one facility in January will be followed by two TARS in March. Op rates are nevertheless expected at high levels as the incentive to produce at high price levels is very strong.
•   Export pricing has yet to move lower from peak levels, although supplies are improving. Initial signs of weakness in some pricing overseas are somewhat hidden by high freight costs and delays in ocean freight.
•   PVC price increase nominations for January are 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. Support from lower export pricing has yet to show and construction demand remains strong.

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: The weekly spot price is taking a favorable position after weeks of escalation. The cause might be due to the diminishing demand-pull from downstream derivatives that may be subsiding due to unplanned outages.

International

Asia: Additional COVID shutdowns in China prompted increased PVC exports to SEA, which is helping to meet firmer demand in the region and keeping PVC pricing static. India did see some weakness due to reduced demand and higher import volumes from China.

Europe: PVC sentiment remains bullish due to healthy construction demand and supply concerns stemming from reduced imports and upcoming maintenance.

PVC Outlook and Suggested Action Strategies

30 Days: PVC output/inventory recovery is expected to cut into export pricing. Use improving supplies/inventories to support an argument for a discount the $0.04/lb increase nomination for Jan. RMC cost escalation is easing. 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 and the construction season. 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

The volatility in the Asian feedstock prices remains a bane on NA prices.

Market Overview

•   The Asian prices continue to experience drastic weekly swings. We are now into a second consecutive week with SM price escalation after weeks of retraction. SM prices in Asia are vulnerable to disruptions given the lack of a reliable inventory position, thus the volatility.
•   Supply/Demand: Slow NA seasonal demand is prevalent, but exports were exceptional per the ACC December preliminary data.
⎯ Domestic Demand -3%
⎯ Sales -7%
⎯ Supply -3%
⎯ Operating Rates -3%
⎯ Exports +70%

Feedstocks

Benzene (BZ): Spot prices are hovering around the current contract price, which, if they persist at those levels, could produce only a minimal change in the February contract price. Forward bids/offers are at current spot levels.

Crude Oil (CO): (Rigs +13) Russia is exporting record levels to Europe after Saudia Arabia unexpectedly cuts production output. The Energy Department is painting a grim picture of higher energy prices, lost jobs, and lost economic growth if fracking is banned. Current CO prices are expecting a boost from a Biden Administration stimulus package.

Ethylene: The weekly spot price is taking a favorable position after weeks of escalation. The cause might be due to the diminishing demand-pull from downstream derivatives that may be subsiding due to unplanned outages.

Styrene Monomer (SM): The spot price is in its fourth consecutive week of escalation. Global prices remain the catalyst driving the rise.

Butadiene (BD): Prices are stable on the week. Exxon nominated minus $0.07/lb for February contract prices.

International

Asia: BZ prices are static, but SM prices took a $30/mt leap. SM prices spiked $100/mt in two weeks on the heels of unplanned outages.

Europe: BZ and SM are still being pulled higher by the Asian prices. BZ is +$60/mt, and SM +$40/mt.

PS Outlook and Suggested Action Strategies

30 Days: Try to mitigate the January increase by citing the lack of domestic demand.

60/90 Days: Feedstock prices will dictate the forward PS price levels over the next several months, followed by the beginning of the seasonal demand, putting PS prices in jeopardy of upward pressure at the start of Q2.

ABS Drivers

Housing permits increased 4.5% in December MOM and 17.3% YOY concentrated in single-family home demand foreshadowing ongoing strength in construction demand.

Market Overview

•   US auto sales finished the year down 14% vs. 2019. Maintaining strong demand into 2021 will continue to tax resin supply. China auto sales were reported by CAAM up 1.9% for 2020 vs. 2019, over 25 million units. European auto registrations finished 2020 down nearly 24% vs. 2019, but down only 3.3% in December, YOY.
•   Housing starts also increased despite the winter season, up 5.8% MOM and 5.2% YOY according to the US Census Bureau.
•   Recent demand optimism for crude oil is torn between the release of the COVID vaccine along with a new US stimulus, and new economic shutdowns in both Europe and Asia. WTI crude oil prices leveled out around $53/bbl through much of the week. Refinery rates continue to make weekly gains, with last week coming in 1.3% higher from the previous week at 82%.

Feedstocks

Acrylonitrile (ACN): Export price assessments shot higher this week, reaching a year+ high, due to increases in the propylene markets as well as stronger demand in Asia.

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: A minor increase in styrene pricing and some bullish expectations for demand after the Lunar New Year holiday managed to pull ABS pricing higher in China, but fell slightly in SEA.

Europe: Firm demand with limited exports along with higher feedstock prices will support higher ABS pricing in Europe.

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 ABS supply chain.

PET Drivers

PET feedstocks are mixed, with PX/PTA on an incline while MEG is starting to see some relief. January RMC still favoring an increase in the $0.025-0.035/lb range.

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.
•   USITC import data for PET in November showed a monthly increase in volume of 72 million pounds (+10% month-over-month). Both the Pacific Rim and Canada saw notable increases at up 77 million and 41 million pounds, respectively. Imports to the Middle East fell roughly 29 million pounds.
•   Recent demand optimism for crude oil is torn between the release of the COVID vaccine along with a new US stimulus and new economic shutdowns in both Europe and Asia. WTI crude oil prices leveled out around $53/bbl through much of the week. Refinery rates continue to make weekly gains, with last week coming in 1.3% higher from the previous week at 82%.

Feedstocks

Paraxylene (PX): Mixed xylene spot prices saw some notable increases last week despite crude oil prices remaining steady just under the $53/bbl mark. The combination of higher upstream costs and firm PX pricing in Asia would lend support for an increase in January contracts.

PTA: Much like in PX, firm upstream markets are putting upward pressure on PTA for January. Sturdy downstream demand over the past few weeks in both NA and Asia should mitigate the effects of demand weakness in Asia leading up to the Lunar New Year holiday and should keep PTA pricing firm to higher.

MEG: Spot ethylene prices moved down to the $0.35/lb level as the recent production issues are being resolved. Improvements in ethylene supplies should trickle down to MEG, which could easily start adding some relief in pricing over the next few months. MEG inventories in China did experience a draw last week.

International

Asia: Market activity for both yarn/fiber and bottle grade PET has started to slow down ahead of the Lunar New Year holiday in Asia. Feedstock prices were more on the mixed side, but higher freight costs continue to weigh in on PET price assessments.

Europe: PET feedstocks supplies have tightened due to higher freight costs and shipping issues, resulting in reduced PET production and higher PET pricing throughout Europe.

PET Outlook and Suggested Action Strategies

30 Days: Elevated feedstock pricing could persist through February. Expect higher PET pricing while focusing on securing resin at lower price levels if possible.

60/90 Days: We could start to see some relief from the MEG front by March. PX/PTA will be much more tied to the state of crude oil markets, so monitor crude to help determine the price direction for late Q1 and into Q2.
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