Market Update
Plastics Feedstocks (Oil, Naphtha, Propane)
- The upstream energy and global PP feedstock markets have slid lower these past two weeks.
- Crude oil is lower by 5% the past two weeks and current pricing of approx. $74/barrel is lower by 15% from its 2024 high of $87/barrel in early April. One reason for the recent price pullback in oil is that OPEC nations have stated they may rollback their voluntary production cuts over the next 12 months. This could put an additional supply of 2 million barrels/day into the global market, a 6% production increase from these producing countries.
- Following crude oil, propane prices in Mont Belvieu, TX are down about 4% to 67.5 cents per gallon (cpg).
- Naphtha prices (CIF Japan) are also lower by 4% to $646/mt.
Propylene/Polypropylene
- Physical PGP prices have traded between 43 and 44cpp the past two weeks. The most recent price settlement for physical PGP in June is 43.125cpp. Physical PGP prices have been extremely flat over the past 3 weeks between 42 and 44cpp.
- May contract PGP settled at 46cpp, a 2cpp decrease from June and right in line with our expectation from two weeks ago. The PetroChem Wire May monthly average for physical PGP was 43.2cpp. The 2cpp decrease in contract PGP pricing was in line with market expectations given where physical PGP was transacting.
- Factors for PGP Price Increase: 1) Inventories of PGP remain low compared to historical averages 2) Lower PGP prices can lead to increased demand for PGP derivatives 3) North American PP reactors returning from force majeure/planned maintenance. 4) Slightly stronger than expected PP demand to end May and start June
- Factors for PGP Price Decrease: 1) Overall upstream/feedstock price complex is weakening (including propane which is a direct feedstock to PGP with 5 PDH units in North America) 2) Potential for PGP inventories to restock into a more balanced position with the Enterprise 1 PDH being set to return to service soon 3) Despite more PP units returning to service from FM, overall PP reactor operating rates remain extremely low (sub 80%). (We highlighted in our last report that the reason for lower operating rates from PP producers is because demand for discretionary durable goods is stagnant.)
- While we can see both the bull and bear case for PGP pricing, BlueClover will continue to give the edge to the lower price environment as we do not think this bear market is finished yet. BlueClover is holding the same view from our last report. That is physical PGP pricing in June will be in the 36-39cpp range. Therefore, we are estimating the June contract PGP price in the 39-42cpp range. We believe this pricing view is lower than what many analysts are calling for. However, like other analysts BlueClover expects contract PGP pricing to bottom out in June, be flat or up small for July and then start to climb higher in August .
- Recap from last Brainfood.. “Ineos has successfully returned from Force Majeure (“FM”) and Invista either has returned or is almost there. Braskem had a scheduled maintenance for its facility in Freeport that started in mid April and set to be back up and running in the 2nd half of May. Heartland Polymers has been running at reduced rates but is scheduled to be back up in June. By late June it appears that almost all PP units will be up and running.”
- We mentioned the following as a bullish factor for PGP on the previous page. Demand for PP has picked up in the 2nd half of May and 1st half of June. After the large price decreases in PGP and PP, domestic buyers have been looking to restock inventories. While many procurement folks think pricing may still slide lower into June, they understand that after a 12cpp slide in PGP over 2 months it makes sense to be in the market buying. Also demand for PP into the export market has increased. Shipping freight rates out of Asia are increasing significantly which in turn is helping global trading companies pay higher prices for PP product from the USA. It’s important to also note that the supply of PP has been there to meet this demand but there are some signs of certain widespec PP needs that are harder to source.