Weekly Market Drivers for the USA
All but one supplier has offered the $0.02/lb decrease for February for all PE resins. The Formosa $0.03 decrease is being discussed at competitive situations and is not a market wide movement.
March 1st increase letters are in place by the majority of the resin suppliers. Suppliers are expected to test the potential increase chances early March with price increases in the off grade and export prices.
Export is very active to Southeast Asia and Latin America. Houston rail yards and packing facilities are reported full and with shipping delays. Traders are buying and speculating higher prices in the spring.
Ethylene: Prices moved higher as some traders begin to speculate potential extended disruptions. Sources report suppliers’ ethylene requirements are mostly covered during maintenance down times. Ethylene supplies continue to remain healthy.
Naphtha: Naphtha price increased above $300/mt. The cost to produce PE pellets increased $0.02/lb to near $0.42/lb in SEA. International
Latin America: Exports to Latin America are offered in the low $0.40’s/lb for LLDPE and HDPE.
RTi PE Outlook and Suggested Action Strategies 30/60/90 Days:
Prime resin buyers should consider end of month resin shipments each month going forward. Off grade buyers should cover needs sooner rather than later in month. This is a recommended strategy until the next increase is implemented. The price of oil will continue to be a leading price indicator. With the exception of oil/naphtha prices, there are no drivers present that suggest any price increase potential. With $30 oil and February price reductions, the market will be stabilized heading into March, April, and May. Increases in oil need to be near $40/bbl for a $0.05/lb price increase or decrease to $25/bbl to achieve additional decreases. Expect suppliers to aggressively drive for price increases.
In the PP market,US producers struggle with February margin expansion efforts.
One PP supplier with a $0.06/lb increase for February has rolled prices flat for many of their customers. With monomer down, this puts $0.015/lb of margin gain, a far cry from their original intentions. At least one of the indexes is following the same approach by rolling their February index flat.
February was a difficult month for producers trying to capture the balance of their January increases. Although they had some success, the potential for further margin gains appears to be highly challenged. We think there is pressure now to roll back some of the gains they have achieved over the past year.
Imports are a big part of the pressure domestic producers are feeling. We continue to see import material, already on US shores, being offered into the market. There are also indications that there even more pounds on the water due to arrive in coming months.
Refinery Rates: US rates went from 88.3% to 87.3. PADD3 went from 87.8% to 86.3%. Rates are expected to increase heading into driving season.
Propylene Inventory: Increased from 3.027 million barrels to 3.127.
PGP: Spot PGP was steady at $0.27/lb.
RTi PP Outlook and Suggested Action Strategies 30 Days:
Current spot monomer values indicate another small decrease for March PGP contract prices. PP prices look to be flat to down for March with margin expansion unlikely for most. 60/90 Days: Current indicators point to flat to down prices in this timeframe, however, downside potential is limited and close to a bottom.
In the PVC market, some producers have consolidated price increase nominations from Jan/Feb into one March nomination of $0.05/lb to try to maximize the effect of higher spot ethylene prices this week as turnarounds get closer.
Ethylene contract for Feb will see additional upward pressure from the spot price run-up this week with March contract seeing an increase as well, if higher spot pricing holds. Net to PVC raw material cost with chlorine holding flat is close to a penny with a fractional give or take over Feb/Mar.
Producers are citing improved demand and higher export prices as further reason to hike prices. That is being tested as higher prices are being experienced in the export market (still below $0.30/lb), but not to the degree requested by producers.
In the end, the increase will be decided by real demand balanced against turnarounds for both PVC and ethylene globally. The jury is still out on this, but the producers would have you think it is a done deal.
In the end, if spot ethylene holds at these higher levels and export continues to move higher, we could see an increase of a 1-2 cents in March, with the balance of the 5 cent nomination fought for in April and May.
PVC raw material costs are down $0.02/lb since Nov. with February fractionally higher and not expected to return to Nov. levels until April or May.
Supply & Demand
Supply: Operating rates are expected strong in Feb. Maintenance is scheduled for late Q1 early Q2, with added PVC capacity showing up in Q2/Q3.
Demand: Although home builders remain positive on an improved market for 2016, new home sales fell more than 9% in January after a strong showing in December. Export demand will be supported by a heavy Asian ethylene turnaround season.
Chlorine: Spot pricing relatively unchanged since the post summer season price drop in September 2015.
Ethylene: Prices moved higher as some traders begin to speculate potential extended disruptions.
RTi PVC Outlook and Suggested Action Strategies 30 Days:
Pricing discussions will be more challenging for March as a surge this week in ethylene spot pricing and coming turnarounds will take center stage. The demand side and movement of export pricing will be key through the month. Supplies are strong & demand still seasonally weak. March pricing is expected to be lower than April. 60/90 Days: Stocking in advance of outages may generate upward price pressure depending on the timing of the uptick in construction demand. PVC output should improve over 2015 aided by increased capacity.
PET market stable from last week. We are expecting a rollover for feedstock contract settlements for February.
Spot markets were mostly flat this week on unchanged market dynamics. That, coupled with quietness in the Asian market from the Lunar New Year, has kept pricing mostly flat for the month.
Crude oil prices has moved up slightly this week, staying around the low $30’s per barrel. US produced crude oil was seen heading to Europe after US congress lifted a 40-year ban on oil exports this week. We could also see US exports of natural gas next month, which may alleviate the current natural gas oversupply.
There is no news currently regarding the antidumping duties final decision from the US Department of Commerce. We were expecting a decision to arrive by the end of the month, however we could see a result arrive next week, as Monday is the last day of the month.
Paraxylene: Mixed xylenes based route to PX became economical this week due to declining MX and stable PX.
PTA: BP’s Zhuahai PTA plant in China (1.25 million tons per year capacity) restarted this week after five days of maintenance, currently operating at full capacity.
MEG: Indorama’s Texas PET feedstock plant declared a Force Majeure for MEG, with no information on when it will be lifted.
RTi PET Outlook and Suggested Action Strategies 30 Days:
Expect pricing to remain stable going into March. Prices should start to climb by the end of the quarter, however. Also make sure to keep an eye on the antidumping duty final decision to see if imports will shift again. 60/90 Days: The summer bottling season is close enough to stir up demand. Buyers have already tried to get ahead of the storm, and it is only going to increase as we move through Q2. Changes in the crude oil market could have additional effects on PET pricing.
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