February

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1 February 2017 Is it likely that increasing benzene prices, that are already impacting styrenic polymer pricing, will stimulate rapid inflation for engineering polymers?

2 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. 2

3 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 3

4 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 4

5 To register an interest Call us on or Injection moulding for commercial staff Course overview The course will include a blend of theory and practical sessions over a period of two days, covering a wide range of topics that combined will provide candidates with the knowledge to make educated decisions when specifying and procuring material. Typical Content Introduction to Polymers Material classification and overview Data sheet interpretation Introduction to injection moulding Understanding melt flow Physical properties of materials Common industry standards Appropriate Candidate The course will be suited for people in a commercial or non-technical role who feel they could benefit from a general understanding of injection moulding materials, machines and the processing of polymers. Course Dates and Location The dates for this two day course are the 15th & 16th March The course will be held at the PTIC (Polymer Training & Innovation Centre),Trevithick House,Stafford Park 4, Telford, TF3 3BA. Information and Booking For more information or to reserve a place on the course please contact Duncan Scott. Telephone: +44 (0) Mobile: +44 (0) duncan.scott@plastribution.co.uk 5

6 Is it likely that increasing benzene prices, that are already impacting styrenic polymer pricing, will stimulate rapid inflation for engineering polymers? As depicted in the graphs to the right, the recent increase in styrene monomer and benzene price is unprecedented in the last seven years. The latest price marks a record high after the highest monthly increase over the same time period was recorded in February The impact on polystyrene prices has been significant. Dramatic increases are being implemented across the full range of styrene monomer-based plastics and elastomers, with calls for up to 500 ( 435) in one hit for some specialist styrenic polymers. This price inflation has been driven by benzene, which is a precursor to styrene monomer. It is interesting to note that the Contract Styrene Monomer price pre-empted the move in Contract Benzene pricing, as it was already evident in December that supply was rapidly tightening. As depicted on page 3 of this publication, benzene is also used in the manufacture of Nylon 6 and Nylon 66 as well as polycarbonate. Nylon 66 is also affected by the price of butadiene, which is also experiencing rapid price inflation. Monthly Contract Price Euro per Tonne Styrene Monomer Monthly Contract Price Change Euro per Tonne Benzene Styrene Monomer Benzene 6

7 Is it likely that increasing benzene prices, that are already impacting styrenic polymer pricing, will stimulate rapid inflation for engineering polymers? Whilst engineering polymers have enjoyed a long period of price stability, if we now refer to page 4 of this publication it looks as if many of the main drivers of polymer prices are taking effect: Feedstock (crude oil prices have increased) Monomer pricing (benzene) Short-term demand (driven by longer-lead times, increasing prices, restricted availability) China/SE Asia Demand (activity is strong) Engineering Polymers 3, , , , , , Brent Crude Benzene Spot (EUR/t) Benzene Contract (EUR/t) Naphtha Spot (EUR/t) Engineering Basket In addition, in the UK, exchange rate is a factor following the BREXIT devaluation, whereby there has been strong evidence of latency affecting engineering polymers pricing. Sep 09 Apr 10 Nov 10 Jun 11 Aug 12 Mar 13 Oct 13 May 14 Dec 14 Jul 15 Feb 16 Sep 16 On the basis of what has been happening in the rubbers market, it is possible that the current circumstances are transitory. However, some buyers will recall the period in the mid-1990s when the supply of engineering polymers became incredibly tight and prices increased dramatically, and it is possible that a similar scenario will now ensue after a recent period of relative stability. 7

8 Is it likely that increasing benzene prices, that are already impacting styrenic polymer pricing, will stimulate rapid inflation for engineering polymers? Price inflation for benzene-dependent engineering polymers is likely to have a pull through effect on other materials such as POM, PMMA and PC, where in some cases prices have already increased and in others significant increases announced. In summary, it now looks possible that the group of materials typically referred to as engineering polymers is likely to enter a period of restricted availability and strong price inflation. Of course, buyer behaviour is likely to exasperate the situation as attempts are made to secure inventory at the most competitive price. Monomer Prices ( GBP per tonne) Feedstock Change (Contract) C2 (Ethylene) C3 (Propylene) Styrene Benzene Brent Crude

9 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 Feb - 16 Mar - 16 Apr - 16 May - 16 Jun - 16 Jul - 16 Aug - 16 Sept - 16 Oct - 16 Nov -16 Dec - 16 Jan - 17 Supply Supply Supply Supply Demand Demand Demand Demand LDPE Ethylene feedstock prices increased in January and this increase was passed on to LDPE prices. Whilst there were many rumours of tight supply, there seemed sufficient material in the market place to meet the somewhat lacklustre demand. Feedstock prices have risen again in February and producers have sought to fully recover this increase and protect their margins. Availability remains balanced/tight. LLDPE The January Ethylene feedstock cost increase translated directly into higher polymer prices. Some producers also sought additional increases, citing tight supply. But whilst availability was reported to be tight, it seemed sufficient to meet demand. Feedstock prices have risen again for February and these have been passed on. Some producers have increased prices further, again claiming that supply is tight. The outlook is for the market to be firm/rising. HDPE All producers sought increases in January to recover the increase in C2 costs. Some producers announced additional increases citing short supply, although they were not always successful. Despite the rumours to the contrary, there seemed to be sufficient availability to meet demand. The increased C2 costs for February have been fully passed on. Availability seems balanced to tight. The expectation is for the market to be firm/ rising over the next few months. PP Propylene feedstock increased by 45/T in January and this was fully passed on to the polymer price. Whilst there were rumours of tight supply from some producers, availability was sufficient to meet demand. A further 45/T C3 increase was announced for February and some producers also sought an additional increase citing tight supply, although they have not necessarily been successful. The expectation is for prices to remain firm over the coming months as we are approaching a period of planned cracker shutdowns, which is likely to tighten the market and increase feedstock prices further. Other Polyolefins EVA pricing is following the feedstock settlements. Demand and supply seem largely in balance. Availability of some grades seems restricted, although this is often due to the point in the production cycle rather than any specific availability issues. The expectation is that prices will be firm/rising in the months ahead. 9

10 1, , Styrenics per tonne 1, , Brent Crude Benzene Spot Benzene Contract Styrene (SM) Spot Styrene (SM) Contract Styrene Basket Data provided by PIE Feb - 16 Mar - 16 Apr - 16 May - 16 Jun - 16 Jul - 16 Aug - 16 Sept - 16 Oct - 16 Nov - 16 Dec - 16 Jan - 17 Supply Supply Supply Demand Demand Demand PS January Styrene Monomer contract prices settled at + 105/T, as the Euro weakened against the Dollar and drove spot prices upwards. PS prices followed, and producers passed this on in full, although traders and distributors did show some flexibility. Supply was reduced as producers throttled output to match demand, which was subdued early in the month, rising towards the end of the period as the threat of further increases in February loomed. ABS For January, ABS price hikes continued despite reaching a yearly high in December, and demand followed a similar trend to Polystyrene, as further increases appeared on the horizon. A surge in demand at the end of the month may cause a shortage of EU grades. The trend continues in February, with SM, BD and ACN facing triple digit rises. Increased demand at the end of last month could lead to some producers selling out early. Lead times for Asian grades have now returned to normal. It seems likely the rises will continue. PC/ABS As usual, PC/ABS is following the trend of ABS. Other Styrenics SAN and specialities such as ASA and SMMA continue to follow the price trend of Styrene February appears to be a supercharged January, with massive SM rises (+ 260/T), an increase of 525/T since the end of Q GPPS and HIPS will follow this trend, but as converters are only sourcing hand to mouth, demand is low. 10

11 3, , Engineering Polymers Data provided by PIE per tonne 2, , , Feb - 16 Mar - 16 Apr - 16 May - 16 Jun - 16 Jul - 16 Aug - 16 Sept - 16 Oct - 16 Nov - 16 Dec - 16 Jan - 17 Brent Crude Benzene Spot (EUR/t) Benzene Contract(EUR/t) Naphtha Spot (EUR/t) Engineering Basket Supply Supply Supply Supply Supply Supply Demand Demand Demand Demand Demand Demand PA6 Sharp price increases of triple digits have created an unusually high demand for this time of year. Benzene contract settled at 177/mt more than expected, leaving suppliers little or no option but to pass on the increases. PA66 A record breaking increase of 460/mt for Butadiene and other feedstocks have seen triple digit increases, leaving suppliers no choice but to implement huge price rises. POM So far we have seen one major producer announce large increases effective from the middle of February. It is only a matter of time before others follow suit. PC Triple digit increases on Benzene mean unavoidable price rises. Although January got off to a slow start, momentum soon picked up into the second half of the month with the announcement of accelerated feedstock costs. PMMA MMA still remains tight and some suppliers are reliant on imports to satisfy demand. Increases are expected into February/March but not of the same magnitude as some other Engineering materials. PBT/PET As for other materials, PBT and PET are likely to follow with increases into March, but the urgency isn t as great as other materials that are Benzene-derived. 11

12 3, , Engineering Polymers Data provided by PIE per tonne 2, , , Feb - 16 Mar - 16 Apr - 16 May - 16 Jun - 16 Jul - 16 Aug - 16 Sept - 16 Oct - 16 Nov - 16 Dec - 16 Jan - 17 Brent Crude Benzene Spot (EUR/t) Benzene Contract(EUR/t) Naphtha Spot (EUR/t) Engineering Basket Other Engineering Polymers The situation for most other engineering polymers points towards increases with rising feedstock costs. 12

13 Fundamentals Brent Crude Oil Price per tonne UK Economic Data Topic Item Date % Trend GDP Real GDP (Q on Q) Q Feb - 16 Mar - 16 Apr - 16 May - 16 June - 16 July - 16 Aug - 16 Sept - 16 Oct - 16 USD per tonne Nov - 16 Dec - 16 Jan - 17 GBP per tonne GDP Real GDP (Y on Y) Q UK Output Manufacturing (M on M) Nov 1.3 UK Output Manufacturing (Y on Y) Nov 1.2 Sales New Car Registrations (Y on Y) Dec -1.1 Sales Retail Sales (M on M) Dec -1.9 Labour Unemployment Rate Nov 4.8 Prices CPI (Y on Y) Dec 1.6 Prices RPI (Y on Y) Dec 2.5 Interest Rate Bank of England Base Rate Jan 0.25 Exchange Rates 1. Oil Price 2. Exchange Rates Feb - 16 Mar - 16 Apr - 16 May - 16 June - 16 July - 16 Aug - 16 Sept -16 Oct - 16 Nov - 16 Dec - 16 Jan - 17 GBP vs Euro GBP vs USD Euro vs USD Oil prices have firmed on the back of an OPEC deal to curb production and $50 per barrel appears to be a fairly stable base. 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. The UK Brexit vote resulted in a significant revaluation of the GBP against both the Euro and USD. 13

14 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