americas - platts · rounding up the list is the political environment, highlighted by ......

www.platts.com/petrochemicalsPETROCHEMICALS

PETROCHEMICALS SPECIAL REPORT

JANUARY 2017

AMERICAS PETROCHEMICAL OUTLOOK H1 2017

COnTEnTSNEW ETHYLENE CAPACITY WILL LENGTHEN MARKET 2

US PROPYLENE MARKET EYES PDH STARTUP IN 2017 3

TIGHT SUPPLY TO PROP UP US BENZENE, STYRENE IN 2017 4

GASOLINE CHANGES TO STRENGTHEN TOLUENE, MX DEMAND IN 2017 6

MTBE TO MONITOR OIL IN 2017, LATIN AMERICAN DEMAND TO STAY STABLE 7

PLANNED H2 STARTUP SERVES AS FOCAL POINT FOR AMERICAS METHANOL IN 2017 8

NORTH AMERICAN PE MARKET BRACES FOR CAPACITY SURGE 10

POLYPROPYLENE IMPORTS TO US LIKELY TO DECREASE 12

US PVC MARKET EYES POTENTIAL INCREASE IN DEMAND 13

NEW US PET CAPACITY PROMISES CHANGE IN POLYESTER CHAIN 14

ECONOMIC IMPROVEMENT MAY BOOST LATIN AMERICAN POLYMER MARKETS 15

SPECIAL REPORT: PETROCHEMICALS AMERICAS PETROCHEMICAL OUTLOOK H1 2017

2© 2017 S&P Global Platts, a division of S&P Global. All rights reserved.

If you thought 2016 was intense, fasten your seatbelt because 2017 looks to give petrochemicals markets in the Americas quite the ride.

Ethane exports out of Texas, Mexico’s new polymer capacity, a rapidly changing ownership landscape in Latin America and the election of Donald J. Trump as president of the United States were among the biggest headlines in 2016.

Not to be outdone, 2017 promises to keep players on their toes, with major capacity expansions on the olefin and polymer sides set to come online in the US Gulf Coast region.

Crude will continue to play a leading role. Persistently weak pricing in 2016 severely impacted key Latin American economies and helped drive divestitures of petrochemical-related properties in Brazil, Colombia and Mexico, where state-controlled energy companies look to dump non-core assets.

Recent agreements to curb global oil production could accelerate what, until recently, had been projected to be a slow and gradual recovery in crude pricing – oil futures flirted with 18-month highs to start the year – although the extent of their impact remains to be seen.

The strength of the US dollar stands to be another focal point. The greenback finished 2016 strong, hovering around 14-year highs. Weak exchange rates could again stifle demand in key markets in Latin America, where credit issues also have disrupted trade in recent years.

Rounding up the list is the political environment, highlighted by Trump’s election and how his administration might deal with issues such as the economy and trade. In Mexico, all eyes will be on Trump’s positions regarding immigration and the North American Free Trade Agreement, both of which directly affect the Mexican economy.

Further south, Mauricio Macri, who is entering his second year as Argentina’s president, must manage the expectations of voters and investors alike regarding his country’s economic recovery. Macri’s Brazil counterpart, Michele Temer, is tasked with similar challenges in a country trying to claw its way out of its worst recession in recent history.

This report highlights the key themes that stand to shape the petrochemical industry in the Americas in 2017.

These include expectations of stronger pricing for basic petrochemicals in North America to open the year on the back of upcoming turnarounds, with additional support for aromatics such as toluene and mixed xylene likely as a new rule governing gasoline blending takes effect in the US.

However, downward pressure on already long ethylene and propylene markets is possible as capacity expansions come online in the Gulf Coast region beginning as early as Q2, while world-scale additions in polyethylene and methanol stand to impact Americas markets in major ways during the second half of the year.

nEw ETHyLEnE CAPACITy wILL LEngTHEn MARKET

Oversupply in the US ethylene market is expected to persist in 2017, with upcoming capacity expansions contributing to a bearish pricing outlook and calls for more exports.

However, a busy turnaround season in the US Gulf Coast region could provide upward pressure in pricing to start the year, as illustrated by a nearly 20% hike in spot values over the last 2-1/2 weeks of 2016.

Length was palpable on the pricing side throughout 2016, with spot and contract pricing posting their lowest yearly averages in more than a decade, according to S&P Global Platts data.

“We do not think the US can consume all the ethylene coming online,” Kim Davies, head of corporate development with shipping major Navigator Gas, said at the recently held S&P Global Platts Petrochemicals Seminar in Houston. “Supply is outstripping demand.”

Four steam crackers totaling more than 5 million mt/year of ethylene capacity are scheduled to commence operations in 2017 along the Texas Gulf Coast, which houses the bulk of North America’s petrochemical industry.

These are the first in a wave of US projects -- resulting from aggressive shale-driven investments -- that stand to total 10 million-12 million mt/year of additional capacity by 2020.

And that’s just the new builds.

Over the past four years, more than 2 million mt/year of capacity has been added through brownfield expansions, with another 620,000 mt/year scheduled for 2017. North America’s ethylene production during the next decade is expected to climb from approximately 32.2 million mt in 2016 to nearly 44.6 million mt in 2026.

Enterprise Products Partners, a Houston-based midstream major, estimates the nearly 40% expansion in ethylene production will result in an oversupplied US market and that producers will need to reach global markets or dial back operating capacities.

“We believe ethylene exports are important to satisfy global demand and growing US supply,” Brian Sinn, Enterprise’s

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petrochemicals marketing and supply manager, said at the S&P Global Platts Petrochemicals Seminar.

To that end, Enterprise, which in September inaugurated the world’s largest ethane export terminal along the Houston Ship Channel, is considering adding a similar setup for ethylene at its Morgan’s Point site as the “next logical step.”

Exports played an important role in 2016, as the market attempted to balance supply with the help of attractive arbitrage opportunities to Asia and Europe.

But the strategy faced logistical constraints, given the US currently has only one export terminal, which is operated by Targa Resources along the Houston Ship Channel and contracted to Mitsubishi Chemical.

US ethylene exports stood at just over 125,000 mt through September, according to data from the US International Trade Commission. Most of the exportable volume headed to Asia, where ethylene pricing on a CFR Northeast Asia basis averaged $1,095/mt through December 23, more than $500/mt above the US average, according to Platts data.

Oversupply a theme in 2016Growing length and a stubbornly weak energy complex pressured US pricing from the start in 2016.

Spot posted its lowest assessment to open a year (19 cents/lb, or $418.87/mt) since Platts began tracking daily pricing in 2004 and soon fell to a seven-year low of 15.75 cents/lb (January 20) just as oil prices slid toward 13-year lows.

Pricing rallied in February and March ahead of turnaround season and marched mostly stable around the 25 cents/lb mark from April to mid-July.

It surged nearly 40% from August through mid-September -- hitting a 21-month high of 41 cents/lb on September 15 -- on outages and weather-related issues in Texas and Louisiana that affected olefins pricing in general.

Pricing slid in the fourth quarter as production restarted and players destocked. Spot prompt-month pricing did rebound to end the year, gaining 4.25 cents/lb (18.7%) from December 14-30 to close at 27 cents/lb, with sources pointing to upcoming turnarounds in Q1 as a driving source. Spot pricing closed the year averaging 26.90 cents/lb, down some 3 cents/lb from 2015 and the lowest average since Platts began assessing daily markets in 2004.

Contract pricing through November’s settlement of 30.25 cents/lb averaged 30.63 cents/lb, as down 1.17 cents/lb from 2015 and the lowest yearly average since 2003, according to Platts data.

Weaker ethylene pricing came despite higher feedstock costs. Purity ethane, the feedstock of choice in North America, averaged 19.6 cents/gal ($2.95/MMBtu) through December 23, up nearly 7% from 2015.

The dynamics impacted North American cracker margins. Cracker margins using ethane as feedstock averaged 21.88 cents/lb ($482.37) through the period, down nearly 18% from 2015, and the lowest since Platts began tracking them in 2011.

Projects near completionFresh off having LyondellBasell restart its steam cracker in Corpus Christi, Texas, in December with an additional 363,000 mt/year of capacity, the US market expects to see a 544,000 mt/year joint venture between Occidental Chemical and Mexican PVC maker Mexichem online during Q1.

Ethylene sourced at the Ingleside, Texas, site will be used in the production of ethylene dichloride, a feedstock in the making of vinyl chloride monomer, the major precursor for PVC production.

Dow Chemical, Chevron Phillips Chemical and ExxonMobil Chemical all have 1.5 million mt/year units due online in Texas, with Dow planning to start its unit in Freeport by midyear and the other two, to be located in Baytown, expected during H2 2017.

All three companies have polyethylene projects tied to their greenfield projects totaling 3.35 million mt/year of resin capacity, some of which could be completed ahead of the crackers. Dow also has a 250,000 mt/year ethylene expansion at its Louisiana Operations complex in Plaquemine set for completion by end-2017, the company said.

Also in Louisiana, Indorama Ventures Olefins, a subsidiary of Thailand-based Indorama Ventures, is targeting Q4 2017 for the startup of its 370,000 mt/year ethylene-capacity cracker, which was previously owned by Equistar Chemicals and idled in 2001. Indorama’s US portfolio already includes ethylene oxide, monoethylene glycol, purified terephthalic acid and polyethylene terephthalate.

The additional capacities in the US Gulf Coast region, coupled with limitations on the export side, point to another year of oversupply for the US ethylene market, sources said.

— Nida Qureshi, [email protected]— Bernardo Fallas, [email protected]

US PROPyLEnE MARKET EyES PDH STARTUP In 2017

The US propylene market is bracing for another bearish year in pricing and more exports as a major capacity addition in the US Gulf Coast is expected to further lengthen supply in 2017.

A key factor driving the bearish outlook is the upcoming startup of Enterprise Products Partners’ propane dehydrogenation unit in Mont Belvieu, Texas.

“Propylene exports will increase next year as new supply enters the market and oil prices strengthen,” a source with close ties to the industry said. “There will be more exports.”

Interestingly enough, the PDH completion date, which is slated for Q1, was the focus of market talk regarding a late-December



surge in pricing that saw spot polymer-grade propylene gain more than 10% to close at 33.75 cents/lb ($744.05/mt) on a free-delivered USG basis.

Upcoming turnarounds on the cracker and refinery sides during Q1-Q2, which tend to tighten supply and lend upward pressure to pricing, were cited by sources as possible reasons for the increase, which was expected to extend into the new year.

Enterprise’s 750,000-mt/year capacity unit, only the third of its kind in North America, was originally scheduled for completion in Q3 2015, but delays pushed back that date at least twice.

The US propylene market has switched from tight to long over the last couple of years. The startup of Dow Chemical’s 750,000 mt/year PDH in Freeport, Texas, in late 2015 was a significant capacity addition. While its production is meant for captive use, it nonetheless has added to the length in supply, sources aid.

Strong refinery run rates over the past two years, resulting from weak crude prices and increased gasoline demand, also contributed more propylene.

A significant amount of propylene in the US is sourced from refineries. Refinery utilization rates averaged 89.96% through mid-December, according to US Energy Information Administration data.

Further pressure on propylene came from a buildup in inventories. US propylene inventories at the end of Q1 were 1.841 billion lb (834,894 mt), reaching their highest levels since Q4 2008, data from the American Fuel and Petrochemical Manufacturers showed.

Length to the market has come amid a low crude-pricing environment, and the two factors combined to pressure prices down more than 50% over the past two years.

Spot polymer-grade propylene, the basis for monthly domestic contract pricing, 32.54 cents/lb FD USG in 2016, according to S&P Global Platts data. By contrast, spot PGP averaged 68.79 cents/lb in 2014.

Spot refinery-grade propylene, which tends to trade at a 10-12 cent/lb discount to the higher-purity PGP, showed a similar trend, averaging 21.49 cents/lb in 2016, compared with 26.52

cents/lb in 2015 and 58.35 cents/lb in 2014.

Spot PGP pricing in 2016 was bearish from the start. It opened the year at 29 cents/lb, its lowest open in seven years, per Platts data, and dipped below 27 cents/lb in mid-February, when oil hit 13-year lows, before rebounding in Q3 on planned and unplanned outages.

March through July saw a period of stability -- with pricing between 30-32 cents/lb -- that also saw exports ramp up. Pricing shed as much as 32% since hitting an 18-month high of 43 cents/lb in mid-September, with spot assessed at 30.50 cents/lb by December 15.

The length in supply and relatively weak pricing compared with other regions allowed for exports. Propylene exports stood at 364,182 mt to end the year, 33% higher than in 2015 (273,654 mt), data from the US International Trade Commission showed. Exports in 2014 were 99,155 mt.

With the market expected long again in 2017, exports are likely to continue to be seen from the USGC, sources said.

Downstream demand, mainly from polypropylene and acrylonitrile markets, started strong in 2016 but quickly dwindled. Demand from acrylonitrile fell as domestic pricing reached 80-month lows in late February amid weak demand and falling propylene pricing.

Acrylonitrile supply quickly tightened in Q2 on production outages late in Q1. A force majeure at a Texas plant in July further tightened supply and domestic pricing reached a 15-month high.

In the polypropylene market, the biggest demand pull for propylene, domestic business was affected by a wave of imports.

Spot PP pricing hit 86-month lows as imports more than doubled year on year in June. PP producers spent the later part of the year trying to incentivize customers to buy domestically sourced resin at the expense of margin expansions.

Several small- to medium-sized PP capacity enhancements were carried out in 2016, sources said. Among them was a 5% capacity expansion (50 million lb/year, or 22,675 mt) at Pinnacle Polymers’ Garyville, Louisiana, facility.

Despite the additional PP capacity, even if demand from the resin side is strong, no major expansions are scheduled online for at least the next two years to absorb the recent and upcoming additions on the propylene side, further feeding the bearish outlook, sources said.

— Nida Qureshi, [email protected]

TIgHT SUPPLy TO PROP UP US bEnzEnE, STyREnE In 2017

US benzene and derivative styrene markets could see stronger pricing during the first half of 2017 because of low inventories and upcoming turnarounds, market sources said this week.

PGP PREMIUM OVER RGP GROWS

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“I think benzene is the hot commodity next year,” a US-based trader source said.

Strong demand for styrene from Asia, anticipated by some market participants, is likely to exacerbate supply issues for both feedstock and monomer in the US Gulf Coast region.

Poor arbitrage economics for benzene persisted during Q4 2016, while Asia buying interest for styrene remained firm. All the while, US styrene inventories will enter the new year low, drawn down by forward selling and production issues. In addition, both the US and Asia have turnarounds planned for the beginning of 2017, leading to a bullish sentiment in those markets.

“Styrene will remain tight from the turnarounds,” a trader-source said, adding that there were expectations for a more balanced market during the second half of 2017.

However, the benzene market will have to pay attention to Asia and China’s pull on the aromatic, an analyst with a major trading company said.

“There is meant to be more reformer capacity coming on in China,” the analyst said.

Additional reformer capacity in China would translate as more benzene production, sources said.

Keeping an eye on styrene The US is typically net-short benzene and depends on imports from other regions to satisfy the deficit. On the other hand, the US is a net exporter of styrene, and demand is strong when opportunities are available to send styrene to Asia or Europe, but minimal export opportunities for the US means weak demand, sources said.

The US benzene market started off 2016 facing the downward pressure of dropping crude prices. However, a lot of that pressure was offset by strength in derivative styrene. US styrene fundamentals during the beginning of 2016 consisted of Asia buying a lot of product because of turnarounds in that region, while US inventories were scarce.

US spot benzene was assessed at $2.11/gal, or $631/mt, FOB US Gulf Coast January 4, while US spot styrene was at 38.75 cents/lb, or $854/mt, FOB USG, putting the styrene-benzene spread at $223/mt, S&P Global Platts data showed.

By February 23, this spread surged and crossed the $400/mt mark for the first time in 2016 on February 23, when it was $412/mt, based on Platts assessments of benzene at $546/mt and of styrene at $950/mt, primarily because of strong Asia demand for US product, sources said.

These fundamentals persisted throughout the first quarter and into the second quarter. During this time, there was a lot of forward selling of styrene, and producers were locking in $400/mt benzene margins.

“Asia bought more than 50% of its usual annual amount during the first quarter of 2016,” a source said.

US benzene pricing started moving higher in the middle of 2016 because of expectations for tighter supply as imports remained low, while styrene was rangebound due to limited export opportunities. US benzene started June 1 at $1.95/gal FOB USG and had risen to $2.20/gal by June 30, Platts data showed.

US styrene pricing was at 45.25 cents/lb FOB USG June 1 and was at 44 cents/lb FOB USG June 30.

Arbitrage opportunities for other regions to send benzene to the US were consistently closed this year. Until November 15, the FOB Korea-US spread averaged around $24/mt, while the average spread between Europe and the US was negative around minus $19/mt. Unattractive arbitrages caused bullish sentiment that pricing would hold firm or move higher often this year. The US still saw benzene shipments from Asia despite poor economics. South Korea was the largest exporter to the US during the first half of 2016, making up 60% of benzene shipments to the US, Platts data showed. FOB Korea benzene pricing has been at a premium to US pricing for December. The FOB Korea-US spread was minus $21/mt, based on an FOB Korea price of $801.50/mt and a US January price of $780/mt FOB USG Monday.

US benzene’s correlation with crude remained strong this year. The benzene to crude ratio, an indicator used by market participants to measure whether or not the price of benzene is overvalued or undervalued, averaged 2.14 through November, similar to the 2.05 average seen in 2015.

An agreement among OPEC and some non-OPEC oil producers to cut output by 1.2 million b/d January 1 will also support higher benzene prices in 2017, sources said.

“A reasonable assumption to make is that benzene pricing will be higher next year. There could be more drilling that comes back online, but crude is much lighter and benzene along with other aromatics will still need to be produced,” a source said.

PS sees uplift from feedstocksFurther downstream in derivative polystyrene, GPPS and HIPS pricing lagged behind benzene volatility. During the first quarter, domestic contracts moved lower from 87 cents/lb to 84 cents/lb behind downward movement in benzene contracts, which fell from $2.12/gal to $1.77/gal. Polystyrene pricing recovered at the beginning of Q2 after benzene contracts surged 41 cents/gal, or $122.59/mt, to $2.18/gal. Feedstock styrene firmness helped to minimize polystyrene’s reaction to cheaper US benzene contracts.

Industry participants in polystyrene markets anticipate 2017 to start off with higher prices in reaction to increases in upstream benzene and styrene prices. US benzene contracts for December saw a 12-15 cents/gal lift from November to a $2.34-$2.35/gal split, sources said. Market participants are set for even higher contracts for January as December spot pricing has averaged $2.59/gal FOB USG as of December 19. US styrene spot



prices have risen 12.25 cents/lb, or $270.06/mt, since October 12, Platts data showed.

Polystyrene contracts rolled over for December with GPPS pricing staying in the mid-80s cents/lb range and HIPS pricing in the mid-90s cents/lb range.

Although there have been increase announcements at 6 cents/lb for January, a 3-4 cents/lb increase is more indicative of hikes in raw material costs and what buyers will likely negotiate for, sources said.

— John Calton, [email protected]

gASOLInE CHAngES TO STREngTHEn TOLUEnE, MX DEMAnD In 2017

US toluene and mixed xylene markets stand to see a spike in demand and possibly stronger pricing in 2017, a direct result of lower sulfur content standards scheduled to take effect at the start of the year.

An expected shortage of benzene in the US Gulf Coast region to open the year could further tighten toluene supply, multiple market sources said.

Benzene, an aromatic whose main demand pull comes from styrene monomer, can be made from toluene through disproportionation processes.

“If gasoline demand for toluene is strong and there’s also chemical demand, then there’s your perfect storm,” a market source said.

Effective January 1, all gasoline sold in the US must contain less than 10 parts per million of sulfur. The long-delayed Tier 3 rule, which the US Environmental Protection Agency had originally intended to finalize in 2012, lowers the allowable level of sulfur from the current 30 ppm, along with ordering other reductions in harmful tailpipe emissions.

Implementation of the rule will result in an octane shortage, with more toluene and mixed xylene to end up in gasoline, market sources said.

2016 defies expectations Market dynamics were different at the start of 2016. Market players prepared for a performance in both markets that would reflect 2015, a time where both markets saw strong demand for gasoline blending as blenders shopped the market often to boost octanes. Both toluene and mixed xylene have great octane-boosting characteristics.

But toluene and mixed xylene markets defied expectations in 2016 as gasoline demand for toluene and mixed xylene was minimized by oversupply in gasoline, sources said. Despite that weak demand, the correlation between RBOB

gasoline and those markets remained strong as toluene and MX traders often hedge trades against movement in RBOB gasoline.

“Inventories in both markets were oversupplied to begin the year in preparation for gasoline demand, which never took off,” a trader source said.

In addition, chemical demand for both was weak to start the year and a lack of liquidity and volatility made it a tough year for traders to make money, tampering down market participation as a result, sources added.

US toluene spot pricing started the year at $2.07/gal or $629.28/mt FOB US Gulf Coast, while MX started at $2.09/gal or $633.27/mt FOB USG, S&P Global Platts data showed.

Spot prices for both markets fell as low as the low to mid-$1.60s/gal range on an FOB USG basis in February, but recovered by the end of the first quarter to $1.92/gal FOB USG for toluene and $1.97/gal FOB USG for MX. June 1 spot toluene was assessed at $1.96/gal FOB USG and MX was assessed at $2.12/gal FOB USG. On Friday, Platts assessed toluene at $2.25/gal FOB USG and MX at $2.32/gal FOB USG.

“These markets often see times of minimal liquidity, but this year was a completely different ball game,” a source said.

Toluene disproportionation margins were more attractive this year than 2015, when they were often in negative territory. The 2015 average was around minus $65/mt for TDP margins and around minus $9/mt for Mobil selective toluene disproportionation margins, based on Platts data, which doesn’t include unit operating costs.

Through November 15, TDP margins have averaged around $68/mt and MSTDP margins have averaged around $58/mt. These margins were mostly in positive territory this year because of a healthy spread between toluene spot pricing against benzene and MX spot pricing, sources said.

Strong start expected Similar to the end of 2015 heading into 2016, there have been moves for more toluene to go into gasoline during Q4, sources said, but supply has been described as tight for both toluene and MX as we head into the new year.

Q1 could be a perfect storm for toluene on a combination of strong gasoline and the need to supply benzene through disproportionation as Asia benzene imports have been low to the US during Q4. Arbitrage economics for Asia to send benzene into the US mostly have been negative in December, which could support tight benzene supply at the beginning of 2017, sources said, adding toluene would be needed for the disproportionation output of benzene.

While market participants are bullish on toluene and MX for 2017 because of their octane-boosting abilities and low sulfur



content, the correlation with energy movement is expected to remain strong.

The agreement of OPEC and non-OPEC members to cut crude oil production by 1.8 million b/d January 1 to ease a global glut over the last two years is another market dynamic that supports higher prices next year in toluene and mixed xylene. Lower crude oil output means lower supply in gasoline and other blendstocks and this could also support stronger gasoline demand for toluene and mixed xylene in 2017, sources said.

“The expectation is that crude prices will be higher next year and, therefore, toluene and mixed xylene pricing will be higher as well,” a trader source said.

— John Calton, [email protected]

MTbE TO MOnITOR OIL In 2017, LATIn AMERICAn DEMAnD TO STAy STAbLE

Recent increases in crude and gasoline prices near year’s end have offered reasons for optimism for US Gulf Coast MTBE producers in 2017.

Demand in Latin America, a key import region, should remain stable in the coming year, with primary importers Mexico, Venezuela and Chile expected to exert a consistent pull on the oxygenate, sources said.

US Gulf Coast MTBE reached a six-month high near the end of the year, reaching $1.8575/gal FOB USG December 20 on

support from a firmer energy complex and a consistent pull from Latin America.

Mexico represented the largest destination for US Gulf Coast MTBE in 2016, and the factors that led to that are expected to persist into 2017.

Growing demand for gasoline and refinery issues in the country have driven demand for imported gasoline and blendstocks, sources said.

Developments in infrastructure and logistics in the country could expand opportunities for MTBE in Mexico, and those could lead to increased imports of finished gasoline using MTBE from US Gulf Coast refineries and blenders, a producer said.

“The rising gasoline demand and ban on ethanol in metropolitan areas in Mexico point to a strong future for MTBE,” the source said.

Recent data from state-owned oil company Pemex have shown gasoline production in Mexico at its lowest levels in 23 years.

Venezuela typically ranks as the second-largest importer of MTBE from the US Gulf Coast. The economic issues in the country represent a concern, but consumption of MTBE should remain relatively stable, sources said.

“They’re struggling, but they are still taking in MTBE,” a source said. “I don’t imagine their demand will just fall off a cliff.”

Chile, another important destination, has been expected to see continued firm demand for the blendstock.

Of the about 12.256 million barrels of MTBE exported from the US Gulf Coast in January-September 2016, 98.8% have gone to Mexico, Venezuela and Chile, according to the most recent US Energy Information Administration data.

Firmer crude strengthens outlookA rally in oil pricing toward the end of the year, prompted by agreements by OPEC and non-OPEC members to curb global production, pushed US Gulf Coast MTBE pricing toward the six-month high seen at the end of the year.

The boost to end the year -- fourth quarters are typically marked by softer pricing amid lower global gasoline demand -- lent for an improving outlook for 2017.

“With oil on its run lately, it has potential to be a decent 2017,” a producer said.

Feedstock pricing has also been higher toward the end of the year, with upstream methanol reaching 17-month highs in December. Market participants will gauge movements in that market, which has been expected to see mostly stable pricing in the Q1 around $1/gal before the anticipated second-half startup of a 1.75 million mt/year unit in Beaumont, Texas.

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Butane and isobutane will also attract attention after pricing movements that caught many by surprise in 2016, sources said. Butane’s value to crude reached atypical levels in the summer, and expected production issues widened the spread between butane and isobutane in periods toward the end of the year.

“Butane remains an unknown for 2017 after what happened in 2016,” a source said.

Expansion appears possibleThe year also should bring a final decision on a proposed 900,000 mt/year oxyfuels project by LyondellBasell in Pasadena, Texas. The decision on the project that would include MTBE, ETBE and isobutylene will likely come in the first half of the year, sources said.

US Gulf Coast MTBE pricing saw an upward trend toward the end of the year as firming oil pricing limited the typical softening in pricing seen in Q4.

US Gulf Coast MTBE averaged $1.6496/gal FOB USG through the first 11 ½ months of 2016, 25% lower than $2.2061/gal FOB USG in 2015, S&P Global Platts data showed.

— Justin Schneewind, [email protected]

PLAnnED H2 STARTUP SERvES AS FOCAL POInT FOR AMERICAS METHAnOL In 2017

A rally in US methanol spot pricing to close the year should set the stage for stability around the $1/gallon mark in the first half of 2017, sources say, but a major second-half capacity expansion in the Gulf Coast region could disrupt the picture in a big way.

The state of crude pricing, global methanol demand growth, methanol-to-olefins economics in China and the balancing of exports from the US, Trinidad and Tobago and Venezuela all represent important factors to consider, but the planned startup of Natgasoline’s 1.75 million mt/year plant during the second half of the year in Beaumont, Texas, will effect Americas pricing and trade flows, sources said.

“There will definitely be some chaos once that plant starts up,” a US-based methanol distributor said.

US spot methanol pricing is likely stable through the first half of the year and in line with current levels around $1/gal, sources said. US spot methanol was last assessed on Tuesday at a 17-month high of 103.75-104.25 cents/gal FOB USG for December and January. US spot pricing has climbed 73% since early August, according to S&P Global Platts data.

Startup to signal a shiftThat anticipated pricing level could begin to soften in the second half of the year around the startup of the Natgasoline plant as the additional material finds its place in the market, sources said.

The potential for pressure in the first half of the year seems limited, sources said, but the re-adjustment of trade flows after the startup will take time and contribute to a period of softer pricing.

“The market took time to settle out when we added three plants in 2015, so it will be similar when adding a large plant in 2017,” a source said.

The Natgasoline plant, the largest in the US by production capacity, is expected by most players to start up around July or August, but some suggest it could come online as late as the fourth quarter.

Owned jointly by OCI and G2X Energy, the plant will surpass the 1.3 million mt/year Celanese/Mitsui facility in Clear Lake, Texas, as the largest in the country.

The addition of the Natgasoline capacity extends the rise in US production that has started a transition from the US being a heavy importer towards it being a net exporter of methanol.

US methanol production capacity started 2015 at 2.25 million mt/year and rose to 5.75 million mt/year by the beginning of 2016. The Natgasoline plant will bring US capacity to 7.5 million mt/year.

The expansion has pushed exports to historic highs while chopping away at imports. The wave of exports has begun to compete in export markets with material from Trinidad and Tobago and Venezuela, who have also lost market share in the US.

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400


Source: Platts

($/mt)

CFR ChinaFOB USGFOB Rotterdam

US METHANOL CAPACITY AT START OF YEAR

0

2

4

6

8

2018201720162015

Source: Platts

(million mt)



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Expanding role as exporterUS exports of methanol reached 1 million mt in 2016 for the first time, according to the most recent US International Trade Commission data. Exports through October were three times higher than in the same period in 2015, and imports through the first 10 months of the year were the lowest since 1998, per ITC data.

Production in Venezuela and Trinidad and Tobago has taken a particularly hard knock, as the two countries represent the largest providers of US imports.

With US production poised to expand further, Venezuelan producers have increasingly sought to develop supply agreements in Asia. Producers in Trinidad and Tobago will also likely target Asia more in 2017 as product competes in Europe with US exports, sources said.

Those two production centers will also be under the microscope because Venezuela continues to grapple with a range of economic issues and Trinidad and Tobago sees falling methanol production levels as feedstock natural gas production declines.

Crude, China attract focus The direction of recently stronger crude pricing will also be widely watched, especially considering the impact on energy-related applications of methanol and on the economics of methanol-to-olefins units in China.

“Methanol pricing will improve as long as oil pricing improves,” a producer said.

In addition to uses in gasoline blending, biodiesel production and the blendstock MTBE, the oil markets will be watched to gauge the economics of MTO units and the large consumption potential they offer.

China will see the startup of two MTO units in the first quarter, combining for a methanol consumption of 3.4 million mt/year. Those additions will push the total methanol consumption of MTO units in the country above 20 million mt/year.

Softer prices in downstream polyethylene and polypropylene markets paired with firmer methanol levels have pressured margins, with typical MTO units running below breakeven levels at the start of the month, according to sources in the region.

Expectations in the Americas remain mixed on how much US material – if any -- will supply Chinese MTO units in 2017, but their ability to attract methanol will have a considerable impact on global markets, sources said.

And all this comes as global spot methanol pricing recovers from a mostly down 2016.

US spot methanol pricing averaged 65.71 cents/gal FOB USG through the first 11-and-a-half months of the year, down 32% from an average of 97.21 cents/gal FOB USG in 2015, per Platts data.

With spot pricing reaching 17-month highs toward the end of the year, balancing trade flows and a stronger outlook for oil pricing, market sources indicated a stronger year on the horizon for Americas methanol.


nORTH AMERICAn PE MARKET bRACES FOR CAPACITy SURgE

This is the year the polyethylene market has been waiting for – when long-discussed new capacity begins to ramp up, finally allowing North American producers to cash in on the advantage provided by cheaper shale gas feedstock.

If 2016 gave the market a glimpse of the future as ethane-fed production came online in Mexico, 2017 should provide a full view of North America’s new reality as the region stands to become an even bigger player in the export market as increases in output will far outpace domestic demand.

In the coming 12 months, PE plants from the likes of Nova Chemical, Ineos/Sasol, Chevron Phillips Chemical, Dow Chemical and ExxonMobil Chemical are expected to start up, bringing the next wave of pellets -- and an additional 4.2 million mt/year of capacity -- to the region.

But as the calendar switches from 2016 to 2017, there is no guarantee buyers will suddenly find themselves awash in low-priced resin. If anything, some expect a price rebound in the short term, as greater end-user demand, turnaround season in the US Gulf Coast region and potential increases in energy complex prices apply pressure to the global market in the first quarter of the year.

“There’s a good chance [US export] prices come up in January,” a trader source said, echoing the sentiments of others who were content to sit on inventory in late December.

High-density blowmolding PE was assessed December 27 at $1,047/mt FAS Houston, linear low-density butene was assessed at $1,058/mt FAS Houston and low-density polyethylene was assessed at $1,213/mt FAS Houston.

The blowmolding assessment is at the same level as the year-end price from 2015, while the LLDPE butene and LDPE

EXPORT PRICES DIP TO END YEAR

0.9

1.0

1.1

1.2

1.3

1.4


Source: Platts

(’000 $/mt)

LDPE general purpose

LLDPE buteneHDPE blowmolding



assessments were the lowest to close a year since the end of 2008, according to S&P Global Platts data.

If prices do rise, it would mark a departure from the past two years, when markets continued to move lower, due in part to declining oil prices and their impact on global markets. In February 2016, the FAS Houston assessments hit their lowest level since mid-2009 as export HDPE blowmolding dropped below $1,000/mt, according to Platts data.

Export pricing fell in the fourth quarter of 2016 after a summer rebound, following a traditional pattern as suppliers attempt to manage inventory heading into the end of the year. Since early September, FAS Houston pricing has declined 12.6%-16.6%, depending on the grades.

Domestic buyers poised to returnThere is also a sense that contract pricing was at or near a floor, which could open the door for buyers to restock depleted inventories after they return from the holidays, leading some to suggest that an increase could be possible early in the year.

December HDPE contract prices were last assessed December 14 at 59-60 cents/lb ($1,301-$1,323/mt) delivered rail-car basis for blowmolding, 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 high molecular-weight film. LLDPE butene contracts were assessed at 57-58 cents/lb ($1,257-$1,279/mt) for delivered rail cars, while LDPE contracts were assessed at 69-70 cents/lb ($1,202-$1,224/mt).

Some market participants have said they would not be surprised to see producers push for an increase if -- or when -- demand improves, particularly if firmer oil prices impact global prices. With no announced hikes for January, the earliest the market could see another uptick is February.

An increase in domestic pricing would be the first since September, when an addition of 5 cents/lb was implemented. Since that time, buyers have pushed for lower pricing, with November contracts dropping 3 cents and December contracts expected to fall by at least 2 cents.

Any price increase could be short-lived, however, as sources have said the expectation throughout the market is that once the new pellets begin to roll out, pricing declines could follow.

Still, US PE pricing, which affects pricing throughout the Americas, is likely to face unprecedented pressure from capacity additions in the US Gulf Coast region along with continued ramp-ups in Mexico and Canada, sources said.

Production from Nova Chemical’s 431,000 mt/year LLDPE expansion in Joffre, Alberta, was expected online by end-2016, company spokesman Pace Markowitz said.

Commercial sales were expected to begin in late 2016 or early 2017, Markowitz said.

Additional capacity will begin coming online in Texas as soon as late in the second quarter of 2017, sources said.

The Ineos-Sasol joint venture will add more than 460,000 mt/year of HDPE capacity in La Porte, followed by Dow’s 1.05 million mt/year of LDPE and LLDPE in Freeport, Chevron Phillips’ 1 million mt/year of HDPE and LLDPE in Sweeney and ExxonMobil’s 1.3 million mt/year of HDPE and LLDPE at Mount Belvieu.

Mexico’s expanding roleIn Mexico, Braskem Idesa -- the joint venture between Brazil-based Braskem and Mexico’s Grupo Idesa-- will continue to fine tune its commercial side to match nameplate production capacity of 1.05 million mt/year of HDPE and LDPE. Polyethylene production will continue to ramp up throughout Q1, according to company sources. The three PE plants, which have 300,000 mt/year of LDPE capacity, operated at a 63% utilization rate in the third quarter of 2016, up from 32% in Q2 2016.

Additionally, Braskem Idesa will continue to be a major player in the export market as it looks to find a home for product beyond the domestic Mexican market. Resin from the plant has made its way to Europe, Africa and Asia, but has yet to make a significant impact on the US market, sources said.

To many, the project has been slow to start, produce and deliver the promise of world scale, though others contend projects of this size take time.

The LDPE production alone could shake things up in a region that has seen market tightness for the bulk of the year. The HDPE production has already displaced some US imports, sources said, adding that pricing from the company along with state-owned Pemex and Dow has been competitive and bested US bulk cargoes.

“We are waiting for Braskem Idesa to make an impact on the US and on pricing,” a US-based trader said, adding that it has the logistics in place to affect the markets.

What, if any, impact the election of Donald Trump has on trade agreements is a key issue market participants will be monitoring going forward, sources said. The US and Canada currently export around 20% of their PE production, and Mexico is the largest export outlet, with almost 2.8 million lb heading south tariff free in 2015 and 2.46 million lb in 2014, according to the American Chemistry Council.

During his campaign, President-elect Trump repeatedly attacked the North American Free Trade Agreement between Canada, the US and Mexico. And while completely doing away with NAFTA seems unlikely, according to recent media reports, the Trump administration could push for substantial changes – as could the other two countries.

Any changes to NAFTA could potentially eliminate the ability for the US, Mexico and Canada to export resin to the others tax free.



“Donald Trump is looking at NAFTA, but will not be able to remove it with an executive action; he will need to convince the legislature and that would be a lengthy process,” Eduardo de la Tijera, a Mexico City-based consultant with Grupo Texne, said.

— Emmanuel Gallegos, [email protected]— Chris Ferrell, [email protected]

POLyPROPyLEnE IMPORTS TO US LIKELy TO DECREASE

North American polypropylene markets stand to see imports slashed in 2017 as regional producers recalibrate domestic contracts to avoid a repeat of 2016, when margin expansions swung the doors open to foreign resin, lengthening supply and pushing prices to seven-year lows.

“Imports are going to be reduced in 2017, and pricing will get competitive,” a US-based polymer distributor said. “North American suppliers know not to push for [unreasonable] price increases because they know imports are a variable.”

And imports are a variable that played an outsized role in 2016.

Under normal circumstances, the region, which includes Canada and Mexico, runs a small deficit of polypropylene -- estimated for 2016 at around 20,000 mt/year by S&P Global Platts Analytics -- for which imports are sought in limited amounts.

But aggressive margin expansions on the domestic front by US-based producers changed that.

PP premiums over polymer-grade propylene peaked at 30 cents/lb ($668.38/mt) in February, nearly three times what they had been to end 2014 (10.5 cents/lb), according to S&P Global Platts data.

North American domestic pricing became so high relative to Asia that it cleared the way for a flood of imports, depressing spot and contracts pricing by summer and causing suppliers to resort to exports in an attempt to balance the market.

Regional production and logistical and geographical barriers historically have deterred resin imports into the region, and particularly the US. Costs associated with debagging and transportation from port to demand centers -- the market is set up to handle resin mostly in bulk and via rail cars -- could, in some cases, match or surpass freight costs from Asia and the Middle East.

Trading houses and some major buyers began to push for imports to diversify supply as far back as 2012, and these picked up steam in 2014-2015, as regional producers gradually expanded margins, sources said.

Imports pressure contractsBy the time US homopolymer contract pricing, which serves as a reference for the region, opened the year assessed at 58.50 cents/lb ($1,289.69/mt) before rising to 60 cents/lb in February -- more than $500/mt above CFR Far East Asia pricing -- the gate for imports had swung wide open.

First-quarter imports alone hit 101,618 mt, or about 55% of the full-year 2015 import total of 184,704 mt, according to data from the American Fuel and Petrochemical Manufacturers association.

Imports through October stood at just under 280,000 mt, 51% higher than the total for 2015 and 107% over the 2014 total, with South Korea, Saudi Arabia and Brazil combining to supply nearly half of the volume, data from the US International Trade Commission showed.

Domestic contract pricing shed 15% from March to June, as imports of resin and finished products as well as high run rates yielded high inventories, before rallying in Q3 to 21-month highs on the back of stronger propylene.

US producers spent the second half of the year walking back much of the margin expansions to halt the influx of foreign resin and have been busy touting margin reductions for their 2017 contracts to further regain market share, distributor and buyer sources have said.

An important portion of PP contracts in North America remains on a monomer-plus basis, with some 2017 contracts heard as low as PGP-plus-14 cents/lb for some large-volume buyers.

Domestic contract pricing for homopolymer grades was last assessed December 14 at a seven-year low of 48.50 cents/lb, tracking steep decreases in feedstock PGP pricing, which settled for the month at 31.50 cents/lb.

The margin recalibration has some market participants confident North American suppliers stand to regain much of the market share lost to imports.

Export pricing declinesLength in the market also affected exports and pricing, with some South American market participants reporting improved availability from the US and FAS Houston assessments hitting seven-year lows of $926/mt in August and again in late November and into December.

Spot pricing for export dived 20% in just two weeks’ time in May, just as production and inventories were at their highest for the year and contract pricing was falling. Inventories ballooned again in October, besting May by roughly 1%, American Chemistry Council data showed. This contributed to the 18.4%

PGP�PP SPREAD NARROWS

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Source: Platts

(’000 $/mt)

PP Homo FAS Houston

PGP FD USG



drop in pricing seen from October through late November.

Producers reduced production in Q4 as inventory levels remained high and imports were available, sources said.

Export pricing was assessed December 23 at $981/mt FAS Houston, well on its way to posting the lowest close to a year since 2008 ($592/mt), Platts data showed.

Exports of US PP through October totaled 821,008 mt, on pace to at least match 2014 and 2015 levels of 984,992 and 982,655 mt, respectively, ITC data showed. Mexico, which imports roughly half of its PP demand, was the top consumer with 409,775 mt, followed by Canada (209,328 mt), Vietnam (24,316 mt) and Peru (19,567 mt).

While expectations from the market are for lower export availability in 2017, even with recent declines in activity, the pace remains above that seen in recent years.

“Exports will still occur in North America, but maybe not at the levels seen in 2016,” a source said.

— Nida Qureshi, [email protected]— Bernardo Fallas, [email protected]

US PvC MARKET EyES POTEnTIAL InCREASE In DEMAnD

A greater emphasis on infrastructure spending by US President-elect Donald Trump’s administration could lead to increased domestic demand for PVC in 2017, potentially pushing prices higher and cutting into export availability, sources said.

Trump has pledged massive spending -- with some estimates ranging from half a trillion to a trillion dollars -- to upgrade the US’ aging roads, bridges and transportation hubs, most notably airports.

Throughout the campaign, Trump also talked about improving schools, hospitals, electrical grids and other projects that would be a boon for the construction industry, which is a major consumer of PVC.

“If he walks the talk, I really think the domestic PVC market in the US will take off like crazy,” a US-based trader source said, noting

that it could limit the export volumes typically seen in the market.

Domestic activity was heard to be strong in the fourth quarter, and there are expectations that January will be an active month, due in part to the traditional need for customers to restock inventories.

The perceived strength in domestic buying was due, in part, to a warmer fall, which helped the construction season extend well into the quarter in the Midwest and Northeast US.

That helped domestic contract pricing remain stable in November and December, with domestic pricing last assessed December 14 at 44-46 ($970-$1,014/mt) cents/lb for delivered rail cars. Three of the last four years have brought lower domestic prices at the of close Q4, according to S&P Global Platts data.

The strong activity in recent months came on the heels of fall turnarounds for multiple producers, sources said, and as a result the market remained tight towards the end of the year.

There will likely be a push to raise prices in January, with a 4-cent increase on the table. The market has seen at least one price increase in the first quarter of each year since 2010, Platts data show.

Export pricing also strengthened in Q4, bucking the trend seen in each of the past two years, with the market behaving more in line with pricing behavior seen between 2011 and 2013, according to Platts data. Export pricing was assessed December 14 at $820-$830/mt FAS Houston, with pricing up more than 7% from the start of October.

Export pricing started 2016 at a six-and-a-half year low of $605/mt FAS Houston, and trended mostly higher, with a few occasional dips. In mid-November, prices reached an assessment of $830/mt FAS Houston, the highest level since April 2015, Platts data show.

Expectations were mixed for January 2017, with pricing talked lower to stable, although at least one producer was heard to be looking for a slight increase compared with December levels.

In addition to restocking, sources also have said spot and export availability could be impacted by a January turnaround by Formosa Plastics.

Formosa Plastics declined comment, with spokesman Steve Rice saying the company will comment on operational status of individual units only if it anticipates “substantive impact on our customers or markets.”

“It doesn’t seem like there will be much to export,” another trader source said.

Global markets move lowerUS export PVC prices have been at or among the cheapest in world for most of the past two years, according to Platts data, and that appears unlikely to change. However, the potential for some tightness on the export side at the start of the coming year comes as key global

US PRICING REMAINS COMPETITIVE

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Source: Platts

($/mt)

CFR China

FAS Houston

CFR WC South America



benchmark markets in Asia are under pressure, sources said.

Weaker demand in China has pushed the domestic price lower, and US-based sellers continue to have difficulties in moving PVC to India in the wake of the ongoing currency demonetization. Securing credit has been a major hurdle for Indian buyers, many of whom have paid for orders with cash in the past, sources said.

Asking prices out of Taiwan, which are monitored closely by the US market participants, are down $40 for January, sources said.

US export pricing was still workable into Latin America, sources said.

Domestic production through the first 11 months of 2016 was up 5.3% from the same period in 2015, while both domestic and export sales were 5% ahead of the year-ago total, according to American Chemistry Council data. Combined sales for the first 11 months of the year rose 5% compared to the same time period in 2015.

Feedstock pricing strongUpstream ethylene prices moved lower beginning in mid September, supporting strong run rates, sources said. US Gulf Coast ethylene prices were in the mid-20s cents/lb range for much of Q4 before inching up to 27 cents/lb to close 2016, with expectations of pricing in a similar range to open 2017.

Two US PVC producers can also make their own ethylene, while all five PVC producers have chlor-alkali production. Another PVC producer, Occidental, is set to begin ethylene production in early 2017.

Caustic soda -- the co-product of chlorine production -- continued to strengthen in the second half of 2016, with spot pricing last assessed December 13 at $395/mt FOB USG, the highest level since mid-2013, Platts data showed. Stronger caustic soda pricing typically lends itself to higher chlorine run rates, and subsequently greater PVC production, since chlorine storage is difficult, according to sources.

Chlorine is combined with ethylene to make ethylene dichloride, which was last assessed December 15 at $220/mt FOB USG. EDC pricing was relatively stable during the second half of 2016.

US producers continue to find a strong market in Mexico for PVC feedstocks, sources said.

Mexico’s Petroquimica Mexicana de Vinilo, a joint venture between state-owned energy company Pemex and PVC-maker Mexichem, has seen much of its production shut or at reduced rates following an April explosion at its Pajaritos complex in Veracruz state. The 184,000 mt/year cracker at the complex did not suffer damage during the explosion, but remains shut. It is unclear when -- or if -- the cracker would be restarted.

PMV uses the bulk of its ethylene for the production of vinyl chloride monomer, which is used in PVC applications.

— Chris Ferrell, [email protected]

nEw US PET CAPACITy PROMISES CHAngE In POLyESTER CHAIn

An upcoming large-scale polyethylene terephthalate plant in the US Gulf Coast appears to be a key factor for market participants in PET, purified terephthalic acid and monoethylene glycol for 2017, sources said.

M&G Chemicals expects to start up a 1.1 million mt/year PET plant in Corpus Christi, Texas, in the first quarter, with a PTA capacity of 1.4 million mt/year following that.

The Corpus Christi plant will rank as the largest single-line PET plant in the world, the company said.

PET from the Corpus Christi site will target the US market and should limit the amount of imports from Mexico and the US West Coast, a source with knowledge of company operations said.

US PET import pricing closed at a five-month high of $1,113-$1,135/mt (50.50-51.50 cents/lb) DDP US West Coast in a year when pricing saw downward pressure from softer feedstocks and cheaper Brazilian imports. US PET pricing averaged $1,100.90/mt in 2016, a decline of 10% from $1,222.10/mt in 2015, S&P Global Platts data showed.

The upcoming US production capacity and antidumping duties implemented in early 2016 appear likely to limit import opportunities, sources have said.

The Department of Commerce decided in March to issue countervailing duties on imports of PET from China and India and antidumping duties on imports of PET from China, India, Oman and Canada, the US International Trade Commission said.

Brazilian PET comes among the imports that could see a shift in 2017 as a polyesters producer appears on a path to change hands in the year.

Mexico-based Alpek agreed in late December with Petrobras to purchase PET producer Petroquimica Suape for $385 million. The deal requires approval from the shareholders of Alpek and Petrobras, followed by approval from Brazil’s Administrative Council for Economic Defense.

PQS’ assets include a 700,000 mt/year PTA plant and a 450,000 mt/year PET plant in Ipojuca, Pernambuco, Brazil.

US SEES CHEAPER IMPORT PRICING

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Source: Platts

(’000 $/mt)

PET bottle grade DDP USWC

PTA NA delivered CP

MEG FOB USG



Alpek owns DAK Americas, which produces PET in the US, Mexico, Canada and Argentina. The completion of a deal by Alpek could lead to a reduction in imports from Brazil as Alpek would likely have DAK Americas address that market share, sources have said.

South American markets would be the core targets for PQS, an Alpek spokesman said.

PET demand has remained strong with growth holding in line with GDP growth, sources said.

That demand will impact feedstock MEG, with the added PET capacity in particular impacting the market.

The MEG market will see a significant impact from M&G Chemicals’ PET plant in the second quarter, a source said.

“The new PET plant will shift the MEG trade balance,” a source said.

MEG market participants in the US Gulf Coast typically try to export volumes to Asia, but the large demand brought by the PET plant could bring a change to that dynamic, the source added.

Producers have already started to ramp up MEG production to build inventories to supply the M&G plant, a trader said.

The state of oil pricing will factor largely into the fate of the MEG market next year, sources said.

Stronger pricing should support MEG economics and generate improved export opportunities to Asia. Exports to Asia could particularly benefit if recently stronger methanol pricing continues to impact the affordability of Chinese methanol-to-olefins units.

The growing ethylene capacity in the US Gulf Coast also represents a potential for upside next year as it could lead to greater MEG volumes for export, a source said.

US MEG pricing will start the year from a position of strength after ending 2016 at a 16-month high of 35.50-36.50 cents/lb ($783-$805/mt) FOB USG.

US MEG pricing rallied late in the year, following strength in the Chinese market. Chinese MEG, which touched a 17-month high in December, attracted all available export material for the last month of 2016 and the first month of 2017, sources said.

“The arbitrage has cleaned out US Gulf Coast inventories,” a source said.

The 16-month high in MEG concluded a year that saw pricing on a mostly upward trend after coming to a 6 1/2-year low in January. US MEG pricing averaged 28.87 cents/lb ($636/mt) FOB USG in 2016, down 19% from 35.47 cents/lb ($782/mt) FOB USG in 2015, Platts data showed.


ECOnOMIC IMPROvEMEnT MAy bOOST LATIn AMERICAn POLyMER MARKETS

Following a tumultuous year that included major political changes and economic uncertainty in key Latin American polymer markets, signs of optimism are beginning to emerge in Argentina and Brazil.

“While consumer confidence is still relatively tenuous, it should encourage consumption and investment,” said Jorge Buhler-Vidal, director of Polyolefins Consulting. “This should revitalize the automobile and construction industries as well as consumer spending on packaged goods.

“Recovery should, in both cases, slowly take place during 2017,” he said.

Such a development would bode well for both nations’ polymers markets, which have recently endured harsh economic contractions and depend on said industries for growth.

But the road to economic recovery is long, and neither country -- nor the region, for that matter -- is out of the woods yet.

While regional producers benefited from relatively low feedstock costs, poor domestic demand pushed some into the export market.

Buyers, meanwhile, remained cautious, despite some of the lowest pricing in years, particularly for imported polyethylene, polypropylene and PVC.

Issues could resurfaceMany Latin American market participants believe 2016’s challenges -- including a strong US dollar, weak demand, credit issues and payment delinquency -- could resurface in 2017.

Lackluster demand contributed to weak pricing throughout 2016, with import assessments for PE, PP and PVC posting their lowest yearly averages since S&P Global Platts began tracking them in 2010-2011.

The most pronounced decline came for PP, with declines in crude and feedstock propylene early in the year and improved spot availability from the US applying pressure.

Homopolymer assessments along the Pacific coast averaged just under $1,080/mt CFR West Coast South America in 2016, down

LDPE PRICING STRONG ON TIGHT SUPPLY

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Source: Platts

(’000 $/mt)

CFR BrazilCFR WCSAFAS Houston



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more than $193/mt compared with 2015. Brazilian pricing averaged just under $1,096/mt CFR basis, some $181/mt below 2015 despite anti-dumping measures limiting US-origin product’s impact.

On the PE side, high-density film pricing averaged $1,182.70/mt CFR Brazil and $1,170.90/mt CFR WCSA, down $133.80/mt and $156.50/mt, respectively, compared with 2015.

Low-density PE, meanwhile, averaged $1,289.80/mt CFR Brazil and $1,293.50 CFR WCSA, down $29.60/mt and $45/mt, respectively, from 2015.

The LDPE softness was curbed by limited spot availability, which resulted partly from production issues expected to be resolved by 2017.

Dow Chemical in December was scheduled to restart its 90,000 mt/year LDPE line in Argentina after a 13-month outage, company sources said. Colombia’s Ecopetrol forecast 2016 LDPE production would hit 55,000 mt, a 15-year high, thanks to improved ethane supply and ethylene production.

Resin availability set to improveIn Mexico, the Braskem Idesa joint venture continues to ramp up production of HDPE and LDPE after the 2016 startup of its 1 million mt/year cracker and derivative plants. The three PE plants, which include 300,000 mt/year of LDPE capacity, operated at a 63% utilization rate in the third quarter of 2016, up from 32% in the second quarter.

Scheduled 2017 North American capacity expansions include 2.23 million mt/year of linear low-density PE and 1.61 million mt/year of HDPE, according to Platts data. Most of the additions will come online in the second half of 2017 and stand to affect pricing in the Americas, sources said.

“For those two, the impact of the United States’ new capacity will be very strong,” a Brazil-based polymer trader said.

On the PVC side, South American import pricing rebounded from record lows -- $650/mt CFR WCSA and $680/mt CFR Brazil on January 27 -- to close near 19-month highs of $885/mt CFR WCSA and $870/mt CFR Brazil, yielding averages of $778.70/mt and $817.30/mt, down $42.40 and $32.90 from 2015, respectively.

Some market participants were less than enthusiastic about 2017.

“The Brazilian economy in 2017 will not be much different than what we saw in 2016, in that we don’t see it getting worse but it will not be a big recovery,” a regional polymer trader said. “Nobody will spend money with this political scenario, and it will take some time to get people confident again.”

There are, however, some reasons for cautious optimism.

The International Monetary Fund projects the Latin American and Caribbean region’s GDP will shrink 0.6% in 2016, but also forecasts 1.6% GDP growth in 2017.

Brazil -- the region’s largest economy -- is attempting to climb out of a major recession and overcome a corruption scandal that rattled state-controlled energy company Petrobras and led to the impeachment of then-President Dilma Rousseff.

Her successor, Michel Temer, has pushed for economic reforms and tighter federal spending, but remains wildly unpopular, and Brazil’s GDP shrank 8% between Q2 and Q3.

The IMF believes Brazil is “poised to emerge from a deep recession,” projecting GDP growth in 2017 after back-to-back contractions. Argentina, meanwhile, is entering its second year under President Mauricio Macri, who promised sweeping economic changes.

From the energy and petrochemical standpoints, Argentina is home to the world’s second-largest technically recoverable wet shale gas reserves and could be poised to embark on a shale revolution should the call for infrastructure be heeded through domestic or foreign investment.

Still, the IMF notes “pervasive macroeconomic imbalances and microeconomic distortions” will complicate Macri’s task, while projecting a 1.8% contraction in 2016 will give way to 2.7% growth in 2017.

“Provided [Macri] pushes forcefully reducing expenses, reducing energy subsidies and collecting taxes, it should continue attracting foreign and local investment,” Buhler-Vidal said.

— Phillipe Craig, [email protected]— Bernardo Fallas, [email protected]

americas - platts · rounding up the list is the political environment, highlighted by ......

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