AMERICAS PETROCHEMICAL OUTLOOK 2016 - Platts · at $1.86/gal FOB USG, ... spot benzene pricing...

PETROCHEMICAL SPECIAL REPORT

FEBRUARY 2016

AMERICAS PETROCHEMICAL OUTLOOK 2016

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SPECIAL REPORT: PETROCHEMICALS AMERICAS PETROCHEMICAL OUTLOOK 2016

2Copyright © 2016 by Platts, McGraw Hill Financial

Persistent weakness in the global energy complex and shale gas-driven expansions in the US appear poised to shape the pricing landscape of key petrochemical markets in the Americas during the first half of 2016.

Already dealing with oil prices in the $30s/barrel to start the year, China’s economy sputtering and Latin America’s GDP growth expected feeble for a sixth straight year, slowed by a recession-stricken Brazil, US petrochemical producers will also have to manage major capacity expansions on the olefins and polyethylene fronts that could further erode margins, some of which were slashed by 50% or more in 2015.

There’s no question the past year brought uncertainty and plenty of change for the global petrochemical industry. Global crude futures closed near 11-year lows, while prices of key basic petrochemicals in the US fell to levels not seen since 2008-2009, and resin prices across the Americas tumbled to record lows.

So far, the downward momentum has continued, although supply/demand fundamentals could stake bigger roles over the next few months in North American markets.

In South America, basic petrochemicals will continue to be heavily influenced by crude price behavior and dynamics in the US Gulf Coast region. Other markets, such as PE and methanol, will be steered by major capacity expansions in North America as well as the rate of China’s deceleration, given supply implications for the region.

This report highlights the key themes that stand to shape the petrochemical industry in the Americas through the first half of the year.

These include expectations of depressed feedstock benzene pricing boosting styrene exports out of the US, the potential for persistent length in olefins – and resulting weakness in pricing – despite impending turnaround seasons on the cracker and refinery sides, and the possibility of even lower polyethylene pricing for the region as the first wave of North American capacity expansions, including Mexico’s Etileno XXI project, comes online. However, stronger demand from the gasoline blending sector could lift toluene and xylene as early as February, while unplanned outages in the USG could prop up ethylene and propylene, pulling polymers in the process.

AROMATICS: MARKETS BRACE FOR ANOTHER BEARISH RIDE AMID WEAK CRUDE

US aromatics market participants are taking a page from last year’s playbook as they brace for what is expected to be another bearish ride in 2016, highlighted by weak crude prices and atypical fundamentals.

With crude prices entering the final week of January flirting with 12-year lows, US aromatics spot prices approached seven-year lows, falling below the $2/gallon FOB US Gulf Coast basis.

It was a continuation of dynamics seen in 2015, when crude benchmarks fell sharply and prices of key aromatics dipped to six-year lows – and not one that appeared to surprise many in the market.

“Energy markets won’t be much different in 2016 regarding pricing, so there likely won’t be much of a difference in aromatics markets,” a US-based trading source said.

Much as in 2015, participants’ expectations center on US benzene pricing being dragged by weak crude and periods of oversupply in what is a structurally short market. For toluene and mixed xylene, expect octane demand to drive pricing in the coming months, sources said.

Spot stumbles out of gateUS benzene spot pricing shed 12% – 25 cents/gal, or $74.75/mt – through the first three weeks of 2016, closing January 25 at $1.86/gal FOB USG, its lowest level since early April, 2009, per Platts data. Spot toluene and MX were close behind, dropping 10% and 11%, respectively, during the period, assessed January 25 at $1.87 ($568/mt) and $1.86 cents/gal ($564/mt) FOB USG.

Consensus among participants in aromatics markets points to crude markets – hovering just above the $30/b mark for both the West Texas Intermediate and Brent benchmarks at time of publication – remaining bearish because of oversupply but seeing a gradual, if slow, gains, and benzene prices following suit.

Some participants, however, believe fundamental shifts in Asia benzene demand could support higher pricing in the US in H2 2016. Asia has additional phenol capacity expected to come online during the second half of the year that will absorb some of the surplus benzene that is finding its way to the USG.

But even these sources acknowledge the surge would be limited in a bearish crude market.

“As we saw throughout 2015, US benzene price movement can only resist crude for so long,” a source said.

For the time being, there will be additional pressure on US spot benzene pricing because of incoming shipments of benzene from Asia, with sources estimating around 200,000 metric tons arriving in January, and another 200,000 metric tons for February.

BENZENE�TO�CRUDE RATIO

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1.75

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2.25

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2.75

Jan-16Nov-15Sep-15Jul-15May-15Mar-15Jan-15

Source: Platts



The industry-accepted benzene-to-crude ratio was 2 in 2015, higher than the historically accepted average of 1.80. Because of a bearish crude market, the industry would likely continue to accept 2 during 2016, sources said. The benzene-to-crude ratio is typically used as an indicator of whether benzene is overvalued or undervalued, based on market feedback.

Blending could provide boostUS toluene and mixed xylene markets could see stronger demand in the coming weeks, and therefore upward pricing, if blenders start shopping for product in preparation for the US driving season, sources said.

This has been the case for the last couple of years toward the end of January, and market participants said such a possibility was strong again given lower gasoline prices, which tend to spur demand.

“Gasoline prices remaining at cheaper levels in 2016 – as they did in 2015 – will result in strong octane demand for toluene and mixed xylene,” a trader source said.

Toluene and mixed xylene are attractive for octane boosting in gasoline because of their high octane and low Reid Vapor Pressure values.

Weak chemical demand in those markets will likely mean the market will be dependent on octane demand as spot pricing remains competitive among other blendstocks, sources said.

Chemical demand for MX has remained weak in the US because of a sluggish paraxylene market, sources said. Bearish crude and length in the benzene market have also played into the equation.

Much like the US saw during the 2015, market participants expect blenders to step into toluene and mixed xylene spot markets in the coming weeks in preparation for the driving season, which runs April-September.

Such an uptick in demand could push prices up and have them peak in the summer months, sources said.

“I don’t think anyone anticipates toluene and mixed xylene markets to perform much differently this year,” a source said.

— John Calton, [email protected]

METHANOL: MAJOR CAPACITY EXPANSIONS IN USG USHER NEW ERA FOR MARKET

The US methanol market will spend the year adjusting to expanded domestic capacity as 2016 shapes up to be an uncertain year for the market, sources said.

Said expansions, softening global demand and weaker crude prices pushed spot methanol pricing down at the end of 2015 and into 2016, leading to a murky outlook for the year.

“The next several years will be about adjusting North America into a role as a net exporter instead of a net importer,” a distributor said.

Global methanol demand and the direction of the broader energy complex will be central in 2016, but the lack of clarity means the year will be difficult to project, market sources said.

“We have more questions than answers at this point,” a source said.

Production startups and expansions in 2015 more than doubled the amount of US production capacity. Operating capacity in the first quarter of 2016 stands at 5.75 million mt/year, a substantial gain from the 2.25 million mt/year at the start of 2015.

All eyes on Chinese MTO plantsDemand might return to rates reflecting GDP after a lackluster year in 2015, sources said. Downstream outages, challenges with Chinese methanol-to-olefins units and weakness in energy affected demand in 2015. Demand may have matched GDP had it not been for the number of downstream outages, a producer said.

The first quarter of 2016 will likely feature a number of downstream outages, market sources have said, with expectations for turnarounds at US Gulf Coast MTBE producers as well as at acetic acid and vinyl acetate monomer sites.

Biofuel and alternative-fuel uses could boost demand for the year, especially given the renewable fuel standards released in December, sources said.

The status of Chinese MTOs will be a key factor in the market, sources said. The 11 active MTO plants in China have a methanol consumption capacity of more than 10 million mt/year when running at full rates and require 2.5-3 mt of methanol to produce 1 mt of olefins, according to market feedback.

Operating rates at those units declined toward the end of the year, running around 73% in Q3, down from 85%-90% earlier in the year, according to producer OCI.

The MTO units compete against naphtha-based olefins and thus rely on crude pricing and demand for olefins and downstream products.

“The key for methanol is to get that crude value up,” a source said. “Methanol then becomes a lot more attractive.”

The additional production facilities proposed for the US plan to export methanol to China for use in MTO units.

RECENT US METHANOL EXPANSIONS (mt/year)

Company Location Capacity Event TimingMethanex Geismar, La 1,000,000 Startup Q4 2015Celanese/Mitsui Clear Lake, Texas 1,300,000 Startup Q3 2015Methanex Geismar, La 1,000,000 Startup Q1 2015OCI Beaumont Beaumont, Texas 912,500 Debottlenecking (adds 125K mt) Q1 2015

Source: Platts



More expansions in pipelinePlanned facilities along the US Gulf Coast include Natgasoline (1.75 million mt/year in 2017), South Louisiana Methanol (1.8 million mt/year in 2017), Yuhuang Chemical (1.8 million mt/year in 2018) and G2X (1.4 million mt/year in 2018). Northwest Innovations Works has planned three sites with a cumulative capacity of more than 14.4 million mt/year that would begin starting up in 2019.

The market will not see any startups in 2016 after the addition of about 3.5 million mt/year in 2015. Methanex’s 1 million mt/year Geismar II unit in Geismar, Louisiana, should achieve first methanol in the first quarter after a Q4 2015 startup, the company said.

Material from that site might not cause any additional supply build in the North American market as it could all be exported to Asia, a source said. Still, the startup might affect pricing due to a possible emotional reaction to the new capacity, the source added.

US spot methanol pricing declined to 6 1/2-year lows near the end of 2015. Pricing has declined even further in the early part of 2016, assessed January 25 at 42.75-43.25 cents/gal FOB USG for January and February, a drop of 25.9% from the start of the year.

North American methanol contracts closed the year at five-year lows, with December at $1.03/gal FOB USG for Southern

Chemical Corp., and at $1.05/gal FOB USG for Methanex. Contracts declined further for January, with SCC at 83 cents/gal FOB USG and Methanex at 90 cents/gal FOB USG.

“It’s going to be one hell of a year,” a producer source said.

— Justin Schneewind, [email protected]

MTBE: OUTAGES, GASOLINE PRICING, CHINA DEMAND TO WEIGH HEAVILY

The US Gulf Coast MTBE market will rely heavily on gasoline pricing in a 2016 that might largely reflect 2015, market sources said this month.

The state of gasoline pricing, an expected first-quarter turnaround period in the USG and the production and demand in China will likely attract the market’s attention for the year, sources said.

The octane booster closely tracks gasoline pricing, with a producer source expecting pricing for gasoline and blend components to gain during the US summer driving season before leveling off in Q4, much like in 2015.

The USGC hosts four MTBE production facilities, but the blend component does not see usage in the US gasoline pool. The vast majority of material produced in the USGC finds its way to Latin

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For more information on Platts’ price assessments and market insight, visit www.platts.com/aromatics

5 REASONS TO CHOOSE PLATTS

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2. Open and transparent – our price discovery process is designed to reflect true market value.

3. Upstream integration – by operating across the energy value chain we have the full picture.

4. IOSCO compliant – we go beyond the required reporting standards.

5. Global – we’re connected to every market.

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America, either exported on its own or blended into gasoline at a USGC refiner then exported.

Latin American demand has been expected to remain firm in 2016, particularly in the large importing countries of Mexico and Venezuela.

“We see Latin American demand strong and increasing each year,” a producer source said.

Mexico consistently ranks as a top importer of MTBE from the USGC, receiving 5.81 million barrels from January-October 2015, according to the latest data from the US Energy Information Administration.

Venezuelan demand should remain constant due to stable demand and limited seasonality, a source there said. The country might not be able to receive enough MTBE from the USGC and will likely also take product from Europe, a source said. Venezuela ranked as the second-largest importer for the first 10 months of 2015 with 3.455 million barrels, the EIA data showed.

Chile, others hold key The market in Latin America will depend on the demand of countries such as Chile, considering the consistency in demand from Mexico and Venezuela, a source in South America said. Chile took 1.707 million barrels in January-October, according to the EIA data.

January-October exports from the US totaled 11.294 million barrels, the EIA data showed. Year-to-date exports were down 3.8% from 11.744 million barrels in January-October 2014.

MTBE exports into Latin America can be difficult to gauge as it is sometimes blended into gasoline by USGC refiners and then exported as gasoline into Latin American countries, per market feedback.

The first quarter will be similar to Q1 2015, with maintenance activity expected in the USGC.

The four USGC producers underwent turnarounds in Q1 2015, leading to significant supply tightness in the net-short Americas region. The USGC has about 2 million mt/year of MTBE capacity, with Huntsman (766,000 mt/year in Port Neches, Texas),

Enterprise Products Partners (550,000 mt/year in Mont Belvieu, Texas), LyondellBasell (525,000 mt/year in Channelview, Texas) and TPC Group (50,000 mt/year in Houston, Texas).

Enterprise Products Partners and LyondellBasell were expected to undergo turnarounds again in Q1 2016. A LyondellBasell spokeswoman declined to comment on operational matters, and Enterprise Products did not return a request for comment. TPC Group said the company does not have a turnaround planned for the first quarter. Huntsman said the company does not plan for a turnaround in 2016.

The impact from Asia remains unclear for the year, with most sources not expecting a strong impact in 2016.

China looks at Latin AmericaA US gasoline trader said there has been interest in sending MTBE from China into Latin America, but it will depend on the run rates at those units, the source said.

“If those run well, there might be exports to Latin America that could disrupt pricing,” the source said. “How those units run will play a big role. If they don’t run well, we expect a similar situation in the market from 2015.”

China’s MTBE capacity will exceed 6 million mt/year by the end of 2016 after startups. Increased exports might materialize with Sinopec consuming product from a new joint venture plant and more material coming in from the Middle East, but Southeast Asia and South Korea will likely be the primary targets, sources in that region said.

China remains a wild card, Americas sources said, with the country still needing blend components. Though some MTBE flowed from Asia into Latin America in 2015, that does not appear primed to become a consistent trade flow in 2016, sources said.

Platts assessed US MTBE on January 25 at $1.4075/gal FOB USG, marking the lowest level since February 2009, according to Platts data, amid weakness in the energy sector and gasoline pricing.

— Justin Schneewind, [email protected]

ETHYLENE: SUPPLY LENGTH TO PRESSURE PRICES DESPITE TURNAROUND SEASON: SOURCES

Not even an impending heavy turnaround season in the US Gulf Coast region has been able to slow the decline of ethylene spot pricing to start the year.

With feedstock ethane tracking natural gas prices lower to start the year and monomer supply consistently characterized as long on the back of recent capacity expansions and limited export opportunities, US market participants expect little in the way of a rebound in price through the first half of the year.

“As long as supply is not affected unexpectedly and as long as downstream derivative demand is not moving higher, there

USGC MTBE VS RBOB SUMMARY �¢�gallon

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Source: Platts

RBOB 83.7 USGC Houston prompt pipeline MTBE FOB USG



is little room for ethylene to move up,” a source with a Texas-based ethylene producer said.

Ethylene spot pricing ended 2015 at 6 1/2-year lows – assessed December 31 at 20 cents/lb ($440.92/mt) FD USG – despite rallying during the final two weeks of the month amid expectations of tighter supply and higher pricing ahead of outages scheduled for Q1 and Q2 2016.

At least seven maintenances are scheduled beginning March through May, including four in Texas and two in Louisiana. The market could see up to 14.3% of capacity – some 4 million mt/year – offline during the period if all turnarounds overlap.

Squeeze fails to materializeThe mood quickly turned bearish, however, with prices dropping to seven-year lows through the first three weeks of January, only to rebound to 18 cents/lb FD USG on a couple of short-lived outages by Flint Hills Resources and ExxonMobil Chemical in Texas.

Supply length and cheap feedstock pricing – US purity ethane, the feedstock of choice for US-based producers averaged 18.36 cents/gal in 2015, down 31.4% from 2014, per Platts data – kept US ethylene prices depressed in 2015, when spot shed 50% of its value.

Similar dynamics are likely at least through the first half of the year should the energy complex remain bearish, prompting some to ponder whether ethylene could see another 40-50% drop in 2016 should producers maintain run rates seen the previous year. Some market participants have said 10 cent/lb ethylene is not out of the question.

Working against a supply squeeze resulting from a heavy turnaround season is the expected addition of more than 700,000 mt/year of ethylene via expansions during the

first half of the year. These expansions include additions by LyondellBasell, Dow Chemical and Westlake Chemical.

Spot ethylene prices started 2015 in the low 40s and ended the year at the 20 cent/lb mark, indicating a 50% drop year on year – although not many people expect to see similar decrease taking place in 2016, market mood is mostly bearish if producers maintain run-rates at the levels seen in 2015.

Despite the marked drop in 2015, US-based producers enjoyed relatively healthy cracker margins – if modest compared to previous years. A producer using ethane as feedstock saw steam cracker margins average 25.79 cents/lb ($568.57/mt) in 2015, down more than 50% from 2014’s 52.73 cents/lb ($1,162.49/mt), per Platts data.

Weakness in pricing was evident from the start in 2015, as spot pricing opened the year on a downward trend after hitting an all-time high of 76.25 cents/lb in mid-September 2014.

Low pricing prompts exportsStill, the January 2 assessment of 43 cents/lb FD USG would be the highest for 2015, with pricing plateauing in the mid-to-high 30s cents/lb from late January through late July, when industry data showed increased production and ballooning inventories.

Contract pricing, which is heavily influenced by spot ethylene and feedstock pricing, closed at near-13-year lows, with the December contract at 25.75 cents/lb, according to Platts data.

Contracts opened the year at 35.25 cents/lb and remained above 30 cents/lb through July before falling further. On the feedstock side, oversupply kept ethane prices at depressed levels, touching a record low of 12.625 cents/gal in late December.

The length in supply and relatively cheap pricing made US ethylene attractive in other regions, resulting in at least 18 cargoes being exported, up from none in 2014 and 11 in 2013, out of the Targa 1 dock amid a number of unexpected outages in Asia and Europe.

Market sources expected exports to continue in 2016, and already three cargoes had departed the USG to end January.

— Pavel Pavlov, [email protected]

PROPYLENE: NEW CAPACITY, REFINERY RATES KEY TO SUPPLY BALANCE, PRICING

Dragged down by falling crude prices and excess supply in 2015, US propylene markets seemed to find their footing to start the new year amid reduced refinery runs and hiccups with new capacity in the US Gulf Coast region.

The support could be short-lived, however, as production at Dow Chemical’s 750,000 mt/year propane dehydrogenation unit in Freeport, Texas was expected to stabilize after a stumbling startup in late December.

US CRACKER TURNAROUNDS, H1 2016 (mt/year)

Company Location Capacity TimingCP Chem Sweeny, Texas 667,000 March 1; 40-50 daysIneos Alvin, Texas 907,000 March 7; 40-50Dow Chemical Plaquemine, Louisiana 500,000 April; 60 – adds 227K mt/yrEastman Chemical Longview, Texas 141,000 April; 60Westlake Chemical Calvert City, Kentucky 286,000 May; 40-50Westlake Chemical Lake Charles, Lousiana 744,000 Q2; 80 – adds 113K mt/yrLyondellBasell Corpus Christi, Texas 771,000 Q2-3; 60 – adds 337K mt/yr

Source: Platts

US STEAM CRACKER MARGINS SUMMARY �¢�lb�

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Source: Platts

Light Naphtha Cracker Ethane Cracker Propane Cracker



Polymer-grade propylene prices hovered around the 28.5-29.5 cents/lb ($628.31-$650.36/mt) range in January, until talks of the successful restart by Dow dipped prices to a three-month low of 28 cents/lb in the last week of the month.

Additionally, propylene stocks for non-fuel use reached 2-month high at 3.269 million barrels for the week ending January 22, EIA data showed, which resulted in weaker refinery-grade propylene prices.

Participants’ expectations entering February revolved around a further downward push in pricing, citing $30/barrel crude, an expected uptick in refinery run rates in Q2 ahead of the US driving season and the stabilization of Dow’s on-purpose production.

Depressed crude prices and length in a market that in recent years had been plagued by tightness weighed heavily in pricing in 2015, as prices declined to levels not seen in more than six years.

After opening the year at 35 cents/lb ($772/mt) for refinery-grade propylene and 47 cents/lb ($1,036/mt) for polymer-grade propylene, prices trended lower throughout the year.

The lowest point was seen in September, when RGP was assessed at 15 cents/lb, the lowest level since December 2008, while PGP prices approached 25 cents, a price not seen since March 2009, according to Platts data.

The propylene weakness came as lower crude prices pressured the entire energy complex.

Refiners’ RGP output risesStrong crude production levels, combined with weaker global economic conditions, led to lower gasoline prices and increased gasoline demand, sources said. And that, in turn, resulted in higher RGP production. The rise in production helped contribute to higher inventories early in the year.

US propylene markets generally move in unison. RGP is sourced from refineries and can be further purified into PGP, or it can be used in the production of alkylate, a high-value gasoline blendstock.

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For more information on Platts’ price assessments and market insight, visit www.platts.com/polymers

5 REASONS TO CHOOSE PLATTS

1. Impartial and independent – we have no vested interest in the market.

2. Open and transparent – our price discovery process is designed to reflect true market value.

3. Upstream integration – by operating across the energy value chain we have the full picture.

4. IOSCO compliant – we go beyond the required reporting standards.

5. Global – we’re connected to every market.

INDEPENDENT POLYMER PRICESNegotiate your everyday deals with confidence. Use Platts’ impartial price assessments.

Make informed pricing decisions based on Platts’ coverage of regional and global polymer markets. You can access the latest prices, news and market commentaries, whenever and wherever you need them.

US PROPYLENE STOCKS SUMMARY �’000 barrels�

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Source: US EIA

Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-15



The market saw fairly steady pricing in the first quarter of the year and even some upward movement as a result of the February strike at refineries and petrochemical plants across the US by the United Steelworkers union. The uncertainty surrounding supplies as a consequence of the strike helped stymie price erosion.

According to sources, the strike led to additional builds in propylene inventories as a precaution in case of prolonged impacts on production.

Even when the strike came to an end in April, refinery run rates stayed above 90% from early April through late September. The buildup helped contribute to steady declines in propylene pricing, with the RGP hitting 15 cents/lb and PGP prices falling to the mid-20s cents/lb mark around the time of the Labor Day public holiday.

Dow starts PDH productionThe market saw more product introduced in mid-December, when Dow Chemical completed the startup of its plant. The PDH unit is the second of its kind in the Americas, and it makes on-purpose propylene by removing two hydrogen atoms from propane. The new PDH plant was initially scheduled to start up in October, but its debut was subsequently pushed back.

The drop in spot prices throughout the year spilled into the contract price market. The year opened with January PGP contract price falling 12 cents/lb to 49.5 cents/lb. In September, the contract price reached 30.5 cents/lb, its lowest since April 2009’s 29 cents/lb, although it has since recovered to 32 cents/lb in December.

The 17.5 cent/lb decline in propylene contract prices was welcomed by polypropylene producers, who have struggled to keep up with strong domestic demand. With lower feedstock prices, polypropylene makers were able to expand margins by 12 cents/lb through the course of the year.

— Pavel Pavlov, [email protected]

STYRENE: HEALTHY MARGINS, ARBITRAGE CONTINUE TO INCENTIVIZE PRODUCERS

Healthy margins and a favorable export market have US styrene sellers bullish to start 2016, with some producers conducting business up to three months in advance.

“The market is hot to start the year,” a source with a major US producer said recently.

Much of it can be attributed to cheaper feedstock benzene, which, much like in 2015, has been pulled lower by falling crude prices as well as in length in supply in the US, a net-short market.

US spot styrene prices have remained in the mid- to high-30s cents/lb range to start the year, closing January 25 at 36.75 cents/lb ($810/mt). At these levels, US sellers have enjoyed an open arbitrage to Asia, with China as a key buyer. Business to

Northwest Europe, which was plentiful in 2015, has been limited, as the arbitrage window was closed.

Sellers have been incentivized to lock in margins as US spot benzene prices have fallen 12% to start the year to levels not seen since early April, 2009. Spot benzene closed January 25 at $1.86/gal ($556/mt) FOB USG.

The styrene-benzene spread widened to $293/mt on January 12 but trailed off some to $254/mt by January 25 after finishing 2015 at $214/mt, according to Platts data. The January US benzene contract price settled at $2.12/gal ($634/mt).

Looking ahead to lock in profitSpot availability was an issue to start the year, with deals for January and February loading done as early as December, while deals for March loading were heard concluded in January, sources said.

Spot styrene from US producers was sold out through February, with limited availability in second half March, sources said, adding that at least one seller was sold out through April.

That kept with the trend that was prevalent throughout 2015 – supply being sold at least a month in advance.

However, sources said there remained questions regarding the supply fundamentals of upstream benzene, and if pricing in that market rose, styrene margins might be squeezed or would have to react to the feedstock movement.

Because of the downward movement in crude, benzene prices have been pressured lower. Benzene spot supply is expected to improve in January and February as imports from Asia arrive.

The benzene arbitrage from Asia to the US has been consistently closed in January, which could suggest tighter supply in March and could exert upward pressure on benzene.

In addition, how long the European and Asian arbitrage windows stay open is uncertain due to questions about supply-demand fundamentals in those regions.

Traders and sellers of styrene would like to see a repeat of 2015, with several sources expecting the first quarter of 2016 to not change too much from 2015.

US STYRENE�BENZENE SPREAD �$/mt�

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Source: Platts



“I don’t think we will see a quick jump in spot prices, but I don’t think feedstocks will rise much either,” a distributor source said.

PS demand expected steadyDownstream demand in the domestic polystyrene market had picked up some to start the year as buyers restocked, sources said, adding that demand would likely remain steady over the first quarter ahead of the summer season, which typically runs from May through August.

The US styrene market had a rebound year in 2015 due to cheaper feedstock and competitive pricing.

Feedstock benzene contract pricing was below $3/gal ($897/mt) for all but one month in 2015, and feedstock ethylene contract pricing was at or below 35.25 cents/lb ($777/mt) for all of 2015, keeping US styrene variable costs estimated at or below 45 cents/lb for most of the year, according to Platts data. Benzene makes up around 70-80% of styrene, while ethylene makes up 20-30%.

With the cheaper feedstocks, US styrene spot prices dropped as well, with the average styrene spot price in 2015 around 47.5 cents/lb FOB USG, compared with 69.2 cents/lb FOB USG in 2014, a decline of over 31% year on year. The US is a net exporter of styrene.

The US tracked the open arbitrage to Asia or Europe, sources said. With the higher prices in these regions came better margins, with a source estimating margins at a peak around 18 cents/lb, or $397/mt.

The US styrene-benzene spread reached a six-year high in June, over $600/mt, with the US styrene-benzene spread average in 2015 at $332.58/mt, compared with a spread average of $196.44/mt in 2014, according to Platts data.

Margins remained healthy to start 2016, and sources expected it to remain that way through the first quarter, with producers maintaining high rates during the period.

— Jeremy Rakes, [email protected]

POLYETHYLENE: DOMESTIC, EXPORT MARKETS FACE UNCERTAINTY AS EXPANSIONS LOOM

If declining oil prices posed significant challenges for domestic US polyethylene sellers in 2015, even more uneasiness is likely in store for 2016.

Continued uncertainty in global crude pricing, combined with the first pellets in a wave of polyethylene expansions, has led to expectations from some market players that prices will continue to move lower over the year.

Domestic contract prices saw market-wide decreases of 13 cents dating back to December 2014, according to Platts data. Additional non-market decreases for some customers

pushed prices down even further for others. Platts’ domestic contract assessments fell 19.2-22.5% from December 2014-December 2015.

Global crude futures closed 2015 near 11-year lows, while prices of key basic petrochemicals in the US fell to levels not seen since 2008-2009, and resin prices across the Americas also tumbled. Through the first three weeks of 2016, there has been little to suggest increases are coming soon.

Contracts fall to kick off yearDomestic polyethylene contracts moved lower in January, with producers conceding 3-cent decreases.

January HDPE contracts were assessed for blowmolding at 59-60 cents/lb ($1,301-$1,323/mt) delivered rail car basis, at 59-60 cents/lb ($1,301-$1,323/mt) for injection grade, and at 62-63 cents/lb ($1,367-$1,389/mt) for HMW film.

January domestic low-density polyethylene contract prices were assessed at 68-69 cents/lb ($1,499-$1,521/mt) for delivered rail cars, while linear low-density butene polyethylene contracts were assessed at 55-56 cents/lb ($1,213-$1,335/mt) for delivered rail cars.

Sources have suggested an additional decrease could be warranted in February. At least one producer told customers it would not seek a previously unimplemented increase, while other producers were still in the process of deciding whether or not to leave it on the table, sources said.

The unsuccessful increases were an attempt to better align domestic prices with strong US demand seen throughout the year and decouple the North American market from weakness in Asia that is closely tied to oil prices, producer sources said.

There had been expectations Q1 could offer producers the best chance to implement higher pricing, with anticipated restocking and upcoming ethylene turnarounds cited as factors.

That was before oil prices again moved lower in December, changing the dynamic for some buyers. Upstream ethylene prices also have shown weakness since the start of the new year, and sources have described domestic resin buying as being slower than anticipated.

US PE DOMESTIC CP VS. SPOT EXPORT SUMMARY �$/mt

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HDPE B/Mldg FAS Houston WeeklyHDPE B/Mldg US Domestic Dlvd Railcar Weekly



“I’ve got the feeling that producers are really getting pushed hard by big customers to get something [lower],” a distributor source said, echoing the sentiments of several in the market.

Exporters feel pressure from AsiaExport prices have also moved lower, with bulk rail car prices from producers to traders hovering in the low-to-mid 40s cents/lb range for most grades.

The FAS Houston assessments for HDPE blowmolding – which includes packaging and transportation to port costs of around 3 cents/lb ($66/mt) on top of bulk rail car prices – was at $959-$981/mt (43.5-44.5 cents/lb) on January 25, the lowest level since October 14, 2009, Platts data showed.

Asian PE prices are more strongly influenced by oil than their US counterparts, as the majority of Asia’s ethylene feedstock is produced from naphtha. Imports from Asia remain rare, but US producers are wary of the threat of lost finished-goods manufacturing to Asia if the gap in resin prices between the two regions grows too wide, sources say.

Oil prices could continue to pressure polymer prices in 2016 but won’t be the only factor influencing them, as supply will begin to lengthen in 2016 as the first in a series of expansions in North America begin to come online.

Etileno XXI in Mexico – a joint venture between Brazil-based Braskem and Mexico’s Grupo Idesa – is expected online in late Q1 2016 after delays pushed back plans for a Q4 2015 startup. Once operational, the plant will bring more than 1 million mt of resin capacity into the fold.

There are expectations that some of that new resin will find its way into the US, and also displace a portion of sales by US producers into Mexico, a preferred landing spot for US exports.

Expansions in the US Gulf Coast by Ineos-Sasol and LyondellBasell totaling some 900,000 mt/year are also expected online in 2016. And more is on the way in 2017-2018, fueled by the unprecedented investment by producers to take advantage of cheaper shale-based feedstocks.

The domestic market will only be able to take on so much of the new capacity, and much of that new resin is expected to find its way into the export market – where the impacts of lower oil will be even more strongly felt.

“Until the price of oil ramps up, things could be ugly,” one seller said.

— Chris Ferrell, [email protected]

BRAZIL POLYMERS: IMPORTERS EYE IMPROVEMENT IN DEMAND IN 2016

Brazilian import polymer prices were expected to remain stable to lower during the first months of 2016 due to weak buy interest and a strong US dollar relative to the domestic currency, market

sources have said. There are, however, expectations the new year will be slightly better than 2015.

“In 2015 we had to do our homework, cutting whatever was possible and preparing for the worst,” a Brazil-based distributor said. “That is why I believe 2016 will be better: in the last 12 months, the market had prepared for the worst. Harder days will come, but we will have more perspective and definition in 2016.”

A similar situation was noted by a US-based trader who sells material to Brazil and elsewhere in Latin America.

“The only difference between Colombia and Brazil right now is that the economy in Colombia has always been very poor, so, it’s sad to say, but I think Colombians are used to it and have been coping better with it,” the trader said.

Polyethylene import prices in Brazil shed 14%-17% in 2015, pressured lower not only by global dynamics, but also poor demand stemming from a financial and political crisis gripping South America’s largest economy.

Lower pricing from key exporting regions, including the US Gulf Coast and Asia, influenced pricing in Brazil, but continued weakness of the Brazilian real against the US dollar made imported resin unattractive.

PE import pricing reached 2015 peaks in May – at $1,490/mt CFR Brazil for HDPE film, for instance – when the real hit one of its stronger levels of the year, around Real 2.92 per US dollar.

The real entered the last week of 2015 lingering at 13-year lows. Meanwhile, the domestic market saw competitive pricing and abundant supply from local producer Braskem for much of the year, which also discouraged imports, sources said.

Braskem gains competitivenessSoft domestic demand and more competitive production costs, stemming mainly from lower feedstock naphtha prices, boosted Braskem’s position and market share in 2015, company and industry sources said.

Market participants have been paying close attention to two main points ahead of 2016: domestic resin prices and the

CFR BRAZIL SPOT PRICING SUMMARY $/mt�

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PP Homo Inj CFRBrazil Weekly

LDPE Film CFRBrazil Weekl

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Brazilian real against the US dollar. The ideal scenario for the Brazilian import market would be one in which Braskem, the domestic producer, increases its prices and the US dollar loses strength, multiple sources said.

Except the opposite has happened to start the year, with Braskem cutting January domestic prices by roughly Real 143/mt ($35/mt), or a 1.9% decrease, for low-density polyethylene and roughly Real 100/mt ($25/mt), or a 1.4% drop, for high-density polyethylene and linear-low density polyethylene grades, per a source with knowledge of company business.

“Due to the experience of the dollar volatility that many customers have experienced, they would much rather purchase import product that will be already on the water, and this is not our case – we are not putting product on the water for Brazil,” the US-based trader said, adding that the main reason was the instability in Brazil.

Weak real remains an issueThe Brazilian real opened the year at 4.03/US dollar and hovered above that level for much of January. As a consequence, prices of imported resin trended lower. Low-density film was last assessed January 20 at $1,180/mt CFR Brazil basis, 1.6% lower since the first 2016 assessment on January 6 of $1,200/mt.

High-density PE import prices shed 4% on average for the period, Platts data showed. HD film assessments, for example, fell $30/mt from Platts’ first January assessment ($1,160/mt) to $1,130/mt CFR basis on January 20, the lowest since Platts began to track pricing in mid-2011. Blowmolding and injection fell $60/mt in the same period, both assessed January 20 at $1,100/mt CFR basis.

Meanwhile, falling crude prices and a resulting wait-and-see attitude by some buyers in the region pushed polypropylene import prices in Brazil to close 2015 at record lows, even as some market participants enjoyed improved margins on the year.

“[The year] 2015 was a year of turbulence,” a second Brazil-based distributor said. “But it also provided us better risk and costs assessments during the period.

“On volume sold, it was a regular amount on the year, but we had better margins despite all the pitfalls we had.”

Import prices for homopolymer-grade polypropylene fell 23% in 2015 ($315/mt), closing the year assessed at $1,025-$1,035/mt CFR Brazil basis on December 16.

Import prices for homopolymer-grade polypropylene fell 8% through the first three weeks of 2016, last assessed January 20 at $950/mt CFR Brazil, which marked the lowest assessment since Platts began tracking import pricing in Brazil in mid-2011.

— Ingrid Furtado, [email protected]

PERU POLYMERS: WEST COAST SOUTH AMERICA APPROACHES NEW YEAR WITH CAUTION

Currency and credit issues, an unstable energy complex and some of the lowest prices in recent months have given market participants along the west coast of South America a bearish outlook for 2016.

In 2015, commodity polymer pricing – including polypropylene, polyvinyl chloride and polyethylene resins – were under pressure in Peru as buyers and sellers had to contend with dismal market conditions and tightened supply.

Homopolymer polypropylene assessments closed the year at $1,025/mt CFR and then fell $40/mt through the first three weeks of 2016, assessed January 20 at $985/mt CFR basis as material from Asia continued to pressure already depressed pricing.

Drops in the Asian market could be traced to an unstable energy market and poor demand in the region, sources said. The CFR Peru import price was at its lowest level in more than five years, pressured in part by lower Asian prices and competitive cargoes entering the region.

The Peru assessments saw a nearly 20% ($240/mt) drop in 2015, pushing assessments to the lowest level since Platts began tracking pricing in Peru in mid-2010. It also marked a 34% fall since hitting a 2015 high of $1,485/mt CFR basis in May.

“For 2016, the price will be driven by Asia,” a US-based trader said, adding that the second biggest economy in the world will continue to be the region with the most impact in Peru.

Year opens on weak notePolyethylene import prices in Peru also hit record lows amid lackluster demand from unfavorable economic conditions, including a strong US dollar.

High-density film prices tumbled 13% in 2015 and nearly 27%, or $410/mt, since May 10, when it reached its 2015 high. The assessment fell another $60/mt through the first three weeks of January to $1,100/mt CFR basis, as US-origin offers pressured markets lower. Both US-origin high-density film and blowmolding were heard readily available, sources said.

CFR PERU SPOT PRICING SUMMARY �$/mt

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PP Homo CFR Peru Weekly HDPE Film CFR Peru Weekly



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US-origin material was deemed competitive for most of 2015 and with good availability. Optimism remains that 2016 will be similar, sources said. Asia-origin material – while becoming more competitive in Q4 – had the disadvantage of the longer delivery periods.

“For 2016, I see a lot of the same as 2015, and maybe more complicated,” a Peru-based buyer said, adding that the poor economic conditions in Asia and regional heavyweight Brazil could influence Peru significantly.

Meanwhile, the polyvinyl chloride import assessments saw a combination of weak demand from regional industries and depressed global pricing drive markets to close 2015 at record lows and start the year even lower.

Assessments fell 15% in 2015 to end the year at $685/mt CFR basis, the lowest since June 2010, when Platts began tracking pricing along South America’s Pacific coast.

The decreases were in line with price behavior seen in key global regions for PVC. Both the US and Asia, key suppliers of PVC to Latin America, closed 2015 at or around six-year lows, dragged down by slow demand and a persistently weak energy complex.

PVC was assessed January 20 at $660/mt CFR Peru, down $25/mt from December 16, 2015, amid talk of competitive US-origin material marketed to the region.

Peru’s general elections in the spring also brought a sense of optimism to commodity market players. “This year we will have national elections and a new president, which will try to revive a stalled import and export economy,” a Peru-based buyer said.

Etileno XXI material expectedThe startup of Mexico’s Etileno XXI petrochemical complex in Veracruz could also lead to buyers along the west coast of South America seeing an increase in resins. Company officials said they are in the final phase of pre-operations on the PE plants and expect to start production late February/early March with the first product available on the market in March.

The project, a joint venture between Brazil’s Braskem and Mexico’s Grupo Idesa, is the first steam cracker built in the Americas in more than a decade and includes 1 million mt/year of PE capacity.

For the next 3-5 years, a significant percentage of its production – as much as 40% in 2016, by company estimates – will be bound for export as Braskem-Idesa works to increase penetration in a market dominated by state-owned Pemex as well as US-based producers and their distributors.

Market expectations revolve around Etileno XXI product finding its way to the US market – through rail into Texas and California and rail ferry into Alabama in the USGC – as well as Central and South America, the Caribbean and Europe.

— Emmanuel Gallegos, [email protected]

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