Plastics Feedstocks (Naphtha, Ethane, and Propane)
- Naphtha prices (CIF Japan) are about 2.5% higher over the past two weeks to a price of $712/mt
- Propane pricing is down about 8% to a spot price of 83 cents per gallon (cpg) in Mont Belvieu, TX. This drop in propane pricing is a result of the incredibly mild winter weather experienced across parts of this country this past week.
- Ethane prices are unchanged around 24cpg from two weeks ago.
- Over the past two weeks, ethylene prices in the Enterprise system in Mont Belvieu, TX increased by about 2cents per pound (cpp) to a spot price of 21.75cpp.
- Physical PGP prices in Enterprise’s system are up 8cpp to a spot price of 52pp from 44cpp on Jan 31st.
- Physical PGP prices rallied to 50.75cpp on Monday Jan 23rd then prices proceeded to drop back down to 44cpp at the end of January. Since the start of February, physical PGP prices have been climbing back up to break through the January high price and establish a new high price point for 2023.
- The rally in PGP pricing remains a supply constraint issue with delayed downtime experienced by PDH production.
- If physical pricing remains north of 50cpp to finish out the month of February, the monthly average PGP price for physical spot volumes in Mont Belvieu, TX will be around 50cpp.
- BlueClover was estimating contract PGP to be up 10cpp in January and the market settled up 11cpp to a contract price of 43cpp.
- BlueClover is estimating that the contract PGP price for February will be up 5cpp to 48cpp.
- With the recent drop in propane pricing and increase in PGP pricing, gross margins for PDH units are around 28cpp which is up significantly from the 6-10cpp range these assets were generating in the November-December 2022 time frame.
- According to industry data, PP production increased in January. This surprised us as the PP market appeared short supplied in January, specifically copolymer PP.
- So far in February the overall supply of PP has improved somewhat but producers are still looking to increase pricing as a result of the increasing costs of polymer grade propylene.
- The rally in PGP in February may make it difficult for producers to realize all the announced margin increase but in our opinion the market is ripe for some of the margin increase to materialize. BlueClover holds its view that convertor demand remains subdued but the ongoing supply pressures on PGP and the lag effect of the December downed PP production continue to lead to PP price increases for customers.
- Prices for WTI crude oil are up a little over 1% to $78.62/barrel.
- According to the EIA, crude oil output in the USA will reach 9.36 million barrels/day in March which sets a new all time high for USA oil production.
- Many industry analysts are keeping a close eye on Chinese oil demand as their economy continues to pull back Covid restrictions across major cities in 2023.
Counterbalancing this globally, Russia said it will cut oil production by 500k barrels/day in March. This is a result of the sanctions placed on Russia by many developed economies.
- Natural Gas prices are down about 5% the past two weeks to a spot price of $2.54/mmbtu.
- 2022 was one of the most volatile years in natural gas pricing. The historical volatility on an annualized basis was about 82% last year versus 49% which is the average annualized historical volatility for the previous 10 years.
- Many industry analysts expect natural gas volatility to remain in place as demand continues while additional supply and storage remain an issue. The following are reasons for increases in demand over the next several years. 1) A decreasing ability for the electrical grid to switch to coal should natural gas shortages arise. 2) The USA natural gas export capacity is set to increase by an additional 40% by 2025.
- From a supply perspective, gas producers are prioritizing capital to shareholders because reinvestment in natural gas supply, transportation, and storage is met with some resistance from local and federal governments and certain ESG shareholders are demanding more investment in renewables.