Volume Resins to Enter New Year Generally on a Downward Pricing Trajectory
Prices of nearly all volume resins were at least flat if not down—with PP followed by PE showing the most dramatic decline going into the new year. Even the exception in the group, nylon 66, which saw prices spiking throughout this year, was stabilizing. A drop in raw materials—starting with crude oil prices as well as all key feedstocks—is a shared contributing factor. Too, there is a general seasonal slowdown in demand, and in some cases, a buildup in supplier inventories and competition from lower-cost imports.
Here is a look at how things are shaping up, according to purchasing consultants from Resin Technology, Inc. (RTi), Fort Worth, Texas; senior editors from Houston-based PetroChemWire (PCW); and CEO Michael Greenberg of the Plastics Exchange in Chicago.
● PE: Prices dropped 3¢/lb in November and additional decreases of 2-3¢/lb were being offered to some customers going into this month, according to Mike Burns, RTi’s v.p. of PE markets. The big change was crude oil dropping from $76/bbl to $50/bbl. Both Burns and PCW senior editor David Barry, note that the North American PE market has to adjust, particularly because of its need to export. Both note that the spread between domestic prices and export prices has been significant—for example, LLDPE butene grade fell below 40¢/lb—a 10-year low.
Burns notes that PE supplier inventories are 1 billion lb higher than a year ago. Barry adds that typically, PE exports have been high in December and the market tightens up—but this is not the case this year. He noted factors such as concern about a slowdown in the global economy coupled by the huge amount of new North American PE capacity that has come on stream, with more to come, such as Sasol’s 1-billion lb/yr LLDPE, Lake Charles, La., plant, in an already saturated market.
The Plastic Exchange’s Greenberg, characterized much of November’s PE spot market as anemic, until the end when the market sprang to life. “Buyers were driven back to the market for different reasons, some needed to procure minimal spot material to keep their plants running, while others, pleased with the recent price decline, ordered a bit more to both use and add to their coffers.” He too saw the potential of more price downslide in December.
As for the new year, PCW’s Barry ventures that first quarter could be like 2018’s fourth quarter downwards, unless oil prices turn around and change the PE cost structure globally. But RTi’s Burns notes that keeping in mind PE prices will start the year at 5-10¢/lb lower than the industry had anticipated, suppliers will aim to stop any further erosion. He also expects the strong domestic demand of over 7% seen in 2018 to continue through 2019.
● PP: Prices dropped by 10¢/lb in November in step with propylene monomer and with strong potential to further drop this month, according to Scott Newell, RTi’s v.p. of PP markets. Moreover, all industry sources anticipated December monomer contracts to drop by at least 5¢/lb. While, he expects PP prices to follow, Newell notes that PP suppliers have issued margin increases of 3¢/lb for this month. “Our current expectation is that some of that 3¢/lb margin has the potential to go through. We have been the highest priced in the world for both monomer and PP and demand destruction took place. At the same time propylene supply has grown significantly—PP prices are now correcting.”
PCW’s Barry said he’s on-the-fence on whether suppliers would be able to get any margin increase, citing both plenty of low-cost PP imports and spot PP spot material availability, in contradiction with the tightness claimed by suppliers. He ventures PP prices to be flat-to-higher in 2019’s first quarter based on historical buying: strong demand from processors who managed their year-end inventories particularly at lower prices.
Newell notes that with PP prices coming down, PP imports will not look as attractive in 2019. “PP prices have the potential to move quite a bit lower than what the industry may have expected due to new market dynamics—oil at $50/bbl, which made heavy feeds like propylene become more attractive to produce, adding to an already buildup monomer supply.”
Characterizing PP spot market activity as very robust going into December, the Plastics Exchange’s Greenberg, reported, “The sharp and swift market correction has shut down the import arbitrage; therefore, we expect much fewer speculative pounds inbound during December, which could eventually lead to a lack of PP supply early in the New Year.” These sources also see the potential for price volatility based on oil price movement and cold weather plant disruptions.
● PS: Prices rolled over in November but there were industry reports the suppliers were offering price concessions of up to 7¢/lb this month. According to both PCW’s Barry, and Robin Chesshier, RTi’s v.p. of PE, PS and nylon 6 markets, that should be even more considering the double-digit price decline of both benzene and butadiene along with a drop of at least 7¢/lb that was expected for styrene monomer.
Moreover, PS supply-demand is balanced and PS imports have slowed in anticipation of lower domestic prices as global PS feedstocks and resin prices are also down, according to these sources. Barry reported that based on falling benzene costs, spot prime PS prices were expected to fall at least 5¢/lb this month. Based on a 30/70 formula of spot ethylene and benzene, implied styrene monomer production costs were 26¢/lb in early December, down from 33-34¢/lb in October, while spot monomer prices had dropped by 62¢/lb to 39¢/lb in that time frame. Chesshier anticipates that PS prices in January will trend to flat—but in general, first quarter could see some upward pricing pressure driven by feedstock prices rebounding—e.g., benzene is seen as underpriced—along with the potential of unplanned feedstock outages.
● PVC: Prices rolled over in November, but suppliers were out with a 2¢/lb increase for this month, which both Mark Kallman, RTi’s v.p. of PVC and engineering resin markets, and PCW senior editor Donna Todd, venture is unlikely to have any legs.
Todd, reported that the price hike was being viewed very unfavorably by resin buyers. “For one thing, December price increases (the last of which occurred in December 1988) don’t work. Demand is at the lowest point of the year, meaning converters have no incentive to pay more for resin they don’t need.”
Characterizing the move as a ‘bargaining chip’, Kallman does not expect realization of the increase. While spot ethylene prices very slightly rose in November from October, precursor ethane prices were dropping, and late-settling November ethylene contracts were expected to either rollover or drop by 1¢/lb or so. “There are no supporting feedstock costs for a PVC price hike, along with falling global ethylene prices due to low crude oil prices,” Kallman says, and ventures that PVC prices in January would be flat and more likely down as negotiations concluded. He expects some upward pressure in the February-March timeframe due to planned plant shutdowns.
● PET: Prices for domestic bottle-grade PET were ensconced in a wide spread range of 68-75 ¢/lb early this month, for domestic and import, for truckload and bulk truckload (48,000 lb) business, according to PCW senior editor Xavier Cronin. The lower end was for higher volume deliveries, including railcars (190,000 lb) to Midwest locations. This compared to the thinner range of 70-72¢/lb seen through most of November.
Cronin reported that PET prices are poised to drop 2-3¢/lb this month as the cold-weather season in most of the U.S. kicked in, and demand for soft drinks and water in PET bottles dropped off. At the same time, there has been increased demand for both PET and HDPE for bottle production for delivery to locations in California due to the wild fires that devastated the state in November. This is expected to increase prices for PET in West Coast markets by January as inventories at bottle-producing plants are used up.
On imports, PET from Malaysia was at 75¢/lb to U.S. East Coast and West Coast ports. PET was again available from the five countries—Taiwan, South Korea, Indonesia, Pakistan and Brazil—for which anti-dumping duties were lifted. PET from South Korea was available for delivery to the U.S. West Coast by February 2019, although demand from Europe was drawing some Korean PET to that region, given higher prices offered by some E.U. countries and lower shipping costs compared to the U.S., according to Cronin.
● ABS: Prices continued flat through November, but a “sea change in all key feedstock costs,” according to RTi’s Kallman, is expected to result in lower prices starting this month. He ventures the decline potential at about 3-5¢/lb per month over a two-to-three month period.
In addition to a 69¢/gal drop in benzene prices from November to December, there are also ample supplies of benzene. Also, butadiene prices came down at about 22¢/lb globally since October. Ditto for acrylonitrile which followed propylene price decline of about 10¢/lb. Moreover, prices of Asian ABS imports have dropped substantially, making an adjustment to domestic ABS prices necessary.
● PC: Prices were trending down in the last two months of this year and significant decreases, in the double-digit range, are expected in January as new year contracts are negotiated, according to RTi’s Kallman. This would shave off quite a bit from the this year’s first quarter price hikes of up to 14¢/lb. “The market has gone from well-balanced to oversupplied due to an influx of lower-priced Asian imports and ample domestic availability,” he says.
● NYLON 6: Prices moved up by a couple of cents in fourth quarter, with suppliers partially successful in implementing their September 5¢/lb increases, according to RTi’s Chesshier. The decline in benzene prices prevented full implementation. “The market dynamics are on the side of processors with prices of key feedstocks dropping, including caprolactum, along with a balanced supply/demand situation.” Chesshier anticipates that processors would seek price concessions this month which, if not now, will materialize this month.
● NYLON 66: Prices, after spiking in the range of 25-40¢/lb within first and third quarters continued to move up in early fourth quarter but stabilized thereafter, according to RTi’s Kallman. Prices in the last two months of this year and in January, at least, are likely to remain flat, with the possible exception of some processors seeing implementations of delayed price hikes. The relative stability is attributed to a drop in key feedstock prices, the start of a general improvement in supply of both intermediates and resins, particularly in North America, a certain degree of conversion from nylon 66 to alternatives, and a global slowdown in automotive. Kallman ventures there is some potential for the market to appear more balanced by as early as mid-year.
The extraordinary Gulf Coast winter storm contributed to demand exceeding supply for nearly all resins. PP prices reacted most dramatically.
Supply constraints continue to be a key factor in further resin price increases.
Global demand slowdown and oversupply end the year with a buyers’ market.