Commodity prices start to falter in Q3

29 July 1996 00:00  [Source: ICB]

As outages come to an end and markets lengthen, lower summer activity and weak Asian markets begin to impact demand.

US ethylene producers are still looking for 0.5 cent/lb price hikes in July which would lift prices from 23.25-24.50 cent/lb agreed in June to 23.75/lb and higher. Spot numbers, now back in the 20-21 cent/lb range do not support price hike ideas, but strong polyethylene markets - up 8%-12% on H1 1995 - and polyethylene producers' attempts to lift prices by a further 3-5 cent/lb in July and August are seen as encouraging signs.

Although cracker maintenance outages are at an end for a few weeks, a new round begins at the end of this month with Phillips taking an outage from 27 July and Amoco, Formosa and Dow following in the September/October timescale. Occidental's maintenance scheduled for autumn 1996 has been postponed until the beginning of 1997. Consultants estimate 230 000 tonne of ethylene will be lost through maintenance in Q3 and Q4, keeping ethylene markets in the US under pressure. However other players believe that when ethylene and polyethylene price hikes peak a destocking process will begin, perhaps even early Q4, reinforced by year-end inventory clearance moves.

Propylene producers are smarting from late interference in the June settlement which pulled price hikes back from 1 cent/lb to 0.5 cent/lb, resulting in a polymer grade price of 19.25 cent/lb and chemgrade at 17.75 cent/lb. Some players claim this June price was linked to a 0.5 cent/lb July settlement but others claim July is still under discussion. One player has nominated a 1 cent hike for August. The revision in June was said to be the result of heavy pressure from chemgrade buyers. Spot numbers are said to be little changed at 19 cent/lb for polymer grade. Prices for chemgrade are 16-17 cent/lb. Polypropylene demand is strong with PP producers looking for 4-5 cent price hikes over July and August.

Butadiene prices rolled over in July at 19 cent/lb. Producers had argued strongly for a 2 cent increase and suggest that a hike is still on the cards for August, but so far there have been no nominations. Two producers offered a July number of 21 cent with a 2 cent TVA so there is still the opportunity to raise prices in August, but spot numbers of 18-19 cent/lb are against any such move.

However the 1 July inventory figure at 56 000 tonne is very low. The absence of Goodyear from the figures and the prospect of further defection is casting doubts on their validity but producers claim the low numbers genuinely reflect very low inventories as a result of production problems at various units over the May/June timescale, notably Huntsman and Lyondell. One producer estimated the equivalent of 45 000 tonne of production had been lost as a result of production outages over the period.

US benzene contract prices appear likely to roll over again in August at 95 cent/gal. An initial $1/gal nomination, based on firm spot numbers and rising octane values, did not receive support and spot numbers have drifted back to 95 cent/gal. Producers claim that the US market is fairly snug and sucking in imports from South America. However the increased toluene/benzene differential is encouraging HDA operations to run at higher levels.

Toluene prices had firmed in line with rising octane numbers but have drifted back to around 75 cent/gal, in line with last month's price levels. Although there is some evidence that HDA activity is picking up, toluene price movements continue to reflect crude and gasoline price moves.

Xylene spot prices are being driven up by strong gasoline blending values and are talked in the 76 cent/gal range with predictions that the August contract price will reflect this strength. July contracts were settled at 71 cent/gal, 6 cent below June.

With low demand from the Far East, prices are predicted to hover around the blend value for the next month. However, prices could slip as the gasoline blending season draws to a close.

Paraxylene contracts are reported as being completely settled at 22 cent/lb, However spot price ideas are considerably lower at 17.5-18 cent/lb fob US Gulf. Producers are now looking towards the fourth quarter for a pickup in fibre market demand. Inventories are now said to be under control with MSTDP units running at low levels and increased seasonal demand from PET production.

Orthoxylene prices have moved up, driven by tightening supply and increased demand. Spot stands at $330-335/tonne and July contracts were a roll-over at 16 cent/lb. Reduced paraxylene production has reduced the amount of orthoxylene in the markets. Demand in the US is said to be very strong for the time of year and export demand from China is showing the first signs of a pickup. Producers are said to be looking for an August US contract of 16.5 cent/lb.

Styrene producers rolled over May styrene prices into June maintaining against all odds the price differential between the US and other world markets, prompting the sale of a 5000 tonne parcel of Korean material to a US major. Although producers believe a roll-over is possible in July, prices are under pressure even though Chevron has suffered a three-week outage.

The lift in Asian prices appears to have run its course with buyers still looking for prices well below $500/tonne cif Taiwan, a price which nets back to under 20 cent/lb fob US Gulf. Currently US producers are still quoting 23 cent/lb fob US Gulf.

US prices
	Contract price	Nomination	Spot price
Ethylene	23.25-24.5 cent/lb (June)	+0.5 cent/lb (July)	20-21 cent/lb fob USG
Propylene (p)                  (c)	19.25 cent/lb (June) 17.75 cent/lb (June)	+0.5 cent (July)	19 cent/lb fob USG 16-17 cent/lb
Butadiene	19 cent/lb (July)	none	18-19 cent/lb cif USG
Benzene	95 cent/gal (July)	none	95-96 cent/gal fob USG
Toluene	80 cent/gal (June)		75-76 cent/gal fob USG(n)
Xylene	71 cent/gal (July)	na	76-77 cent/gal fob USG
Paraxylene	22 cent/lb (Q3)	na	385-395/tonne fob USG
Orthoxylene	16 cent/lb (July)	0.5 cent (Aug)	330-335/tonne fob USG
Styrene	32-35 cent/lb (June)	none (July)	23 cent/lb fob USG
Propylene (p) = polymer grade; (c) = commercial grade; toluene (n) = nitration grade; (a) = TDI grade. Contract price: ethylene/propylene/butadiene delivered pipeline connection; benzene, orthoxylene, fob US Gulf; styrene ex-works; PX FD.*posted price 1 elimination of TVA

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