November Will increasing crude oil prices result in polymer price inflation?

Transcription

1 November 2017 Will increasing crude oil prices result in polymer price inflation?

2 IMPORTANT INFORMATION The know-how hub Earlier this year we released a new content library known as the know-how hub. The Hub is a registration-based source of premium content containing over 80 articles covering insights, opinion, market intelligence and innovation. It s a resource that we intend to grow over time to include ebooks, videos, webinars, white papers, analysis reports and more. Price know-how As important insightful content, we have taken the decision to move our monthly Price know-how across to the Hub with effect from 1 Jan 18. This means that Price know-how will no longer be available directly through the know-how section of our website, but instead will be available via the Hub at As a subscriber to Price know-how, you will not need to register to gain access to the Hub as you will be automatically signed-up from 1 Jan 18 and will be able benefit from the wide selection of articles and insights available. You can unsubscribe from the Hub at any time. How does the Hub work? Following registration, you will be able to select your specific areas of interest so that relevant content can be tailored to suit your preferences; this level of interaction will enable us to push new related content to you as and when appropriate. Alongside a quick search facility, you will also be able to filter your search for content based on industry, material supplier or product ; a recently viewed button also allows you to keep check of the information you ve previously looked at. Please note that in order to maintain the integrity of hub and its content, we will be unable to register addresses that are not linked to a company, i.e. personal accounts such as yahoo, gmail, hotmail etc., and private addresses. We value your continued support. If you have any queries regarding this notice, please contact Duncan Scott on , or duncan.scott@plastribution.co.uk. Tel: +44 (0) report@plastribution.co.uk 2

3 Welcome to price know-how A monthly publication looking at key factors that affects UK polymer markets. The concept of a user friendly market report came from feedback about an article published in PRW (Plastics & Rubber Weekly) about the 2011 market outlook to which Plastribution made a significant contribution. The objective of the report is to form the basis of discussion about issues such as pricing and availability and so be a basis on which to consider purchasing strategies. Whilst some price surveys currently exist they are often difficult to interpret, use foreign currencies, and differing units of measure. Price know-how aims to be relevant by providing an overview, material group specific reports and more general economic information including exchange rates and GDP growth. To keep things relevant the report is in Sterling with tonnes as the common unit of measure. It is also believed that the report will support customers in explaining polymer price trends to their own customers, employees and shareholders. As always we would welcome your feedback, and as ever your sales team is available to discuss your specific requirements. The Plastribution Team Price know-how Glossary Monomers C2 Ethylene C3 Propylene SM Styrene Monomer Naphtha Derivative from the crude oil refining process, which is then typically passed through a (Steam) Cracker to produce various feedstocks including C2 and C3. Force Majeure (non-legal definition) Since accepting an order circumstances outside of the supplier s control, and which could not have been foreseen, now prevent the supplier from fulfilling the contract either in part or in full. By declaring Force Majeure the contract is to supply is cancelled. 3

4 From Hydrocarbons to Polymer A simple diagram explaining the production routes from the major hydrocarbon sources through feedstock to the most common polymer groups. Coal Methanol Formaldehyde Acetal Natural Gas MTO Methane Dehydrogenation Ethane Propane Butane Condensate Steam Cracking Olefins Ethylene (C2) Propylene (C3) Butadiene (C4) Butene Phenol Polyethylene LDPE, HDPE, LLDPE Polypropylene Cumene Ethylbenzene Acetone Styrene Polystyrene ABS PMMA SBR Benzene Crude Oil Naptha Aromatics Toluene Xylenes Cylclohexene Adipic Acid Nylon 66 Caprolactam Nylon 6 4

5 Main drivers of polymer prices Feedstock Oil Gas Shale Naptha Polymer Producers Monomer Pricing Polymerisation Styrene Margins Propylene Inventory Ethylene Planned & Benzene un-planned C4 outages Market Currency Short term demand Short term reductions in capacity Arbitrage of Polymer China & SE Asia supply/demand Trader Activity External Factors Political War Natural Disaster Changes in consumer markets Geographical shifts in supply/demand 5

6 Plastribution has recently released a new online content library known as the know-how hub. The resource, which is free to access via our website ( is a registration-based source of premium content containing insights, opinion, market intelligence and innovation. The know-how hub allows us to offer tailored content that will be constantly evolving, thereby providing subscribers with a high value opportunity to access a wealth of useful information. Mike Boswell, Managing Director, Plastribution Tel: +44 (0) report@plastribution.co.uk 6

7 Will increasing crude oil prices result in polymer price inflation? Prior to the recent increase in the market price for crude oil, most buyers of standard thermoplastics, including PP, PE and PS, were anticipating market prices to fall through to the end of the year. Here, factors such as sluggish October demand in mainland Europe, coupled with the requirement for polymer producers to streamline inventories in anticipation of the lull in demand that occurs in December as most processors cease operations for seasonal holidays, were all cited as justification for price reductions. Brent Crude USD per Barrel Aug Aug Aug Sep Sep Sep Sep Oct Oct Oct Oct Oct Nov 17 As depicted in the graph, the price of Brent Crude has risen by 20% ($10 per barrel) since the middle of August. More recently, the price of Naphtha has increased in response to the inflation in crude oil pricing. In Western Europe, Naphtha is the dominant feedstock for the production of C2 (ethylene), C3 (propylene) and other important polymer feedstocks. Not only will this input cost price inflation cause polymer producers to become more resistant to calls from buyers to reduce prices, but there is also the possibility that given the relatively low inventories held by polymer converters, which have also been subject to the self-imposed de-stocking policies in October, that this change in fundamentals will be a signal to start purchasing. This action, of course, may result in a self-fulfilling prophecy as buyers of polymer scrabble to secure supply at the best possible prices. Whilst input costs are also of influence in the engineering polymers arena, here the basic fundamentals of supply versus demand continue to have the most influence over pricing. In the case of a wide range of materials, including PA6, PA66, PC, POM, PMMA, PBT and others, market conditions continue to very much favour the sellers. This is a situation that is likely to continue for the foreseeable future. Monomer Prices ( GBP per tonne) November-17 Feedstock Change (Contract) C2 (Ethylene) 0.00 C3 (Propylene) 0.00 Styrene Benzene Brent Crude Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct 17 Naphtha Chart USD per tonne 29 Oct Oct Nov Nov Nov Nov 17 7

8 1, Polyolefins Data provided by PIE per tonne 1, Brent Crude Naphtha Spot Ethylene (C2) Spot Ethylene (C2) Contract Propylene (C3) Spot Propylene (C3) Contract Polyolefin Basket Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Supply Supply Supply Supply Demand Demand Demand Demand LDPE October saw an increase in ethylene feedstock costs and many producers applied additional increases citing tight supply. However, an improvement in the value of Sterling minimised the effect on UK prices. The expectation for November was for prices to soften. However ethylene feedstock costs rolled over. This was because of rising oil and naphtha costs. Many producers therefore initially announced rollover pricing, although some softened their stance in a bid to stimulate demand. Deals are also available as producers look to balance inventories before year end. LLDPE Ethylene feedstock prices increased again into October and many producers applied additional increases, citing tightness in the market place. However, the strength of Sterling provided some respite to UK processors and minimised the scale of the increase. Despite the fact that feedstock costs have rolled over into November, polymer pricing has come under pressure with many buyers holding-off their purchases in expectation of a better deal. Plentiful supply of C4 LLDPE from traders has added to the pressure in the film market. Availability of injection moulding grades continues to be balanced/ tight and here pricing is much firmer. HDPE Producers announced price increases in excess of the feedstock settlement in October citing tight supply, although the strength of the Pound versus September softened the impact for UK processors. Despite the rollover in feedstock costs in November, polymer prices have softened. Supply is plentiful and many buyers have delayed purchases in expectation of a better deal. How much longer these deals are available should oil and naphtha costs continue to rise, is as yet unclear. PP Propylene feedstock costs increased in October and these were passed on. However, the strength of Sterling versus the Euro lessened the impact on UK processors. Feedstock costs rolled over in to November, and whilst many producers initially tried to roll over prices, it soon became clear that processors were expecting reductions. Many have held off purchases and producers have softened their stance in a bid to stimulate demand. It is currently uncertain how long this trend will continue given the rising costs of crude oil and naphtha. Other Polyolefins Prices for October followed the increase in Ethylene feedstock costs, although the impact in Sterling terms was lessened due to an improvement in the value of Sterling. Prices have rolled over in November in line with the feedstock settlement. Supply remains balanced/tight. As costs continue to rise, it is unclear how much longer these deals will be available. 8

9 Styrenics Data provided by PIE per tonne 2, , , , , , Brent Crude Benzene Spot Benzene Contract Styrene (SM) Spot Styrene (SM) Contract Styrene Basket Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Supply Supply Supply Demand Demand Demand PS October saw styrene monomer and PS fall by 110/T, with decreases boosted by a strengthening Pound. Supply and demand remained steady, but rumours mid-month of a further drop for November caused some converters to hold off. ABS October ABS followed a similar pattern to PS, albeit with less price volatility as rises in butadiene and ACN muffled the impact of the SM fall. November is indicating further decreases on the horizon, as weakening butadiene costs, coupled with SM, have driven down composite costs. PC/ABS As usual, PC/ABS price is following the trend of ABS, although demand is not as strong. Other Styrenics SAN and specialities such as ASA and SMMA continue to follow the price trend of Styrene monomers. As predicted, November has seen a further fall in Styrene monomer (- 90/T), as monomer supply has returned to normal. This should carry through to PS, and supply and demand are balanced. 9

10 3, , Engineering Polymers per tonne 2, , , , Brent Crude Benzene Spot (EUR/t) Benzene Contract(EUR/t) Naphtha Spot (EUR/t) Engineering Basket Data provided by PIE Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Supply Supply Supply Supply Supply Supply Demand Demand Demand Demand Demand Demand PA6 The small reduction in feedstock costs seen last month was short lived. Demand is out-stripping supply and many of the main players are returning to the market for price increases. PA66 Demand is exceeding supply with many producers currently sold out and some suppliers reported to be oversold. Further price increases are inevitable, with many having made their announcements already. Material is expected to remain tight for the remainder of the year and could well affect supply into POM Suppliers are calling for increases and bottlenecks are starting to appear in the supply chain with evidence of extended lead-times on some grades. PC Prices are on the way up once again as availability becomes tighter, and many customers may find themselves on allocation. PMMA There are on-going shortages of MMA globally (although one producer has actually lifted force majeure on MMA, which may help things in the longer term) but there is no relief on the horizon yet. Prices continue to rise. PBT/PET Supply is likely to remain tight with no major changes expected in the short term. 10

11 3, , Engineering Polymers per tonne 2, , , , Brent Crude Benzene Spot (EUR/t) Benzene Contract(EUR/t) Naphtha Spot (EUR/t) Engineering Basket Data provided by PIE Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Other Engineering Polymers The situation for most other engineering polymers is that pricing will remain high but stable. 11

12 Fundamentals Brent Crude Oil Price per tonne Nov - 16 Dec - 16 Jan - 17 Feb - 17 Mar - 17 Apr - 17 May - 17 Jun - 17 USD per tonne Jul - 17 Aug - 17 Sep - 17 Oct - 17 GBP per tonne UK Economic Data Topic Item Date % Trend GDP Real GDP (Q on Q) Q GDP Real GDP (Y on Y) Q UK Output Manufacturing (M on M) Aug 0.4 UK Output Manufacturing (M on Y) Aug 2.8 Sales New Car Registrations (Y on Y) Sep -9.3 Sales Retail Sales (M on M) Sep -0.8 Labour Unemployment Rate Aug 4.3 Prices CPI (Y on Y) Sep 3.0 Prices RPI (Y on Y) Sep 3.9 Interest Rate Bank of England Base Rate Nov 0.5 Exchange Rates Oil Price 2. Exchange Rates Euro Oil prices remain relatively stable. The Sterling/Euro exchange rate is a key factor in determining polymer prices, since most materials are Euro denominated. At current price levels, each Euro Cent change in price represents a 10 per tonne impact on our polyolefins materials basket. The Sterling/USD exchange rate tends to be more influential on the price of ABS, PC and POM Nov - 15 Dec - 15 Jan - 16 Feb - 16 Mar - 16 Apr - 16 May - 16 Jun - 16 Jul - 16 Aug - 16 Sep - 16 Oct - 16 Nov - 16 Dec - 16 Jan - 17 Feb - 17 Mar - 17 Apr - 17 May - 17 Jun - 17 Jul - 17 Aug - 17 Sep - 17 Oct - 17 USD The UK election result has created significant economic uncertainty. Since the end of May, the Pound has weakened against the Euro. The apparent stability against the USD is related to concern over US economic stability under the Trump regime. 12

13 Methodology This report is produced based upon the following fundamentals: - EURO based pricing for feedstock and polymer pricing Conversion of Euro and USD based prices at prevailing exchange rates Product baskets weighted according to UK consumption Acknowledgements We would like to thank the following organisations for their support in producing this report: - PIE (Plastics Information Europe) HM Treasury Disclaimers The information provided in this report are based upon data available from both external an internal sources, and whilst care is exercised in producing this report we give no guarantee of accuracy. Furthermore we accept no liability for purchasing decisions based upon the information provided as the petrochemical market is complex and volatile. Plastribution Limited. All rights reserved Plastribution Limited Clinitron House, Excelsior Road, Ashby Business Park, Ashby-de-la-Zouch, Leicestershire LE65 1JG Tel: +44 (0) Fax: +44 (0) sales@plastribution.co.uk