GLOBAL PLASTICS & POLYMERS MARKET REPORT

Transcription

1 GLOBAL PLASTICS & POLYMERS MARKET REPORT INSIDE Monthly Pricing 3 Price Forecast 6 Energy & Economics 6 Historical Prices 63 SUMMARY November 6, 28 Issue No. 128 CMAI Katy Freeway, Suite 7 Tel: +1 (281) Houston, TX 7779 Fax: +1 (281) CMAIGPPR@CMAIglobal.com Additional Contacts Page 6 Feedstock and energy highlights As of early November, global crude oil prices are ranging from the low to upper $6 per bbl level. Inventories appear quite adequate given the reduced demand associated with the global economic slowdown. Global monomer feedstock prices have also plunged in recent weeks as energy prices have declined. In Asia, naphtha prices have declined to $312 per metric ton. In the US ethane remains the favored feedstock for ethylene production. Quarterly Forecast Price Snapshot Q4-8 Q1-9 Q2-9 Q3-9 oct-8 Chg vs. Sep oct-8 north America / lb / lb $/Mton north America, Cents / lb. (Average) HDPE - Contract Blow Molding 85. (11.) 1, PP - Contract Inj. Molding Homopolymer 86. (9.) 1, PVC - Contract Rigid Pipe, Forecast 59. (5.) 1, PS - Contract High Heat Crystal (5.) 2, PET - Contract Bottle Grade 82.5 (9.) 1, oct-8 Chg vs. Sep oct-8 West europe /MTon /MTon $/Mton West europe, euros / Metric ton (Average) HDPE - Contract Blow Molding 1,235 (25) 1,587 1, PP - Contract Inj. Molding Homopolymer 1,2 (1) 1,542 1, PVC - Contract Susp. Rigid Pipe 96 (6) 1, PS - Contract Gen. Purpose 1,19 (1) 1, ,21 PET - Contract Bottle Grade 1,41 (57) 1, oct-8 Chg vs. Sep oct-8 China rmb/ton rmb/ton CFr $/Mton China CFr, $ / Metric ton (Average) HDPE - Import Blow Molding 5,469 (4436) PP - Import Inj. Molding Homopolymer 4,785 (495) PVC - Import Rigid Pipe 6,221 (184) PS - Import Gen. Purpose 1, ,11 1,179 PET - Export Bottle Grade 9,1 (155) 1, ,4 Price Changes: September-8 to october-8 raw Materials / lb /MTon $/Mton North America Ethylene (12.) (198) (265) North America Propylene (5.) (82) (11) North America Chlorine (.6) (1) (14) North America Styrene (6.) (99) (133) North America PET Raws (11.85) (195.4) (261.2) West Europe Ethylene (6.5) (18) (144) West Europe Propylene (3.8) (62) (83) West Europe Chlorine (2.1) (35) (47) West Europe Styrene (6.3) (14) (139) West Europe PET Raws (5.4) (9) (12) Asia Ethylene (18.8) (31) (415) Asia Propylene (24.) (396) (53) Asia Chlorine (.8) (13) (17) Asia Styrene (8.2) (135) (181) Asia PET Raws (7.7) (127) (169) energy $/MMBtU $/BBl Crude Oil- Cushing- Low (27.) Crude Oil- Brent- Average (26.2) Crude Oil- Dubai- Average (27.7) North America Natural Gas Burner Tip (1.) This report is for the exclusive use of the client company. Distribution outside of the client company is strictly prohibited without the prior written consent of Chemical Market Associates, Inc. (CMAI). The prices presented herein are strictly the opinion of CMAI and are based on information collected within the public sector and on assessments by CMAI staff. CMAI MAKES NO GUARANTEE OR WARRANTY AND ASSUMES NO LIABILITY AS TO THEIR USE. Copyright CMAI 28 All Rights Reserved

2 Pe PP PvC PS eps ABS Pet Pe PP PvC PS eps ABS Global Plastics & Polymers Market Report n. AMeriCA MArKet highlights demand Price PE resin prices declined by eleven cents a pound in October. Production costs continued to decline and demand remains quite weak. Exports volumes are declining and imports may be on the increase. PP prices continued their descent in October. The fall was reduced by a quick contract propylene agreement of down 5. cents per pound for October. Demand remains soft, especially as converters reduced purchases in anticipation of much lower prices in November. The relatively high cost of propylene kept export volumes limited. In the U.S./Canada, PVC resin prices for August and September appear to be settling flat with July. Buyers and sellers are now talking about a drop in PVC price in the fourth quarter. Demand for PVC was not good over August and September and demand seems to have gotten worse during October. PVC export demand and price has also plummeted during October making export shipments much harder to justify. PS contract settled down 5 cents per pound for all grades in October but that is just a warm up for the November negotiation. Record setting decreases are working their way down the chain. PBR supply is slowly beginning to improve. HIPS availability varies depending on the grade. EPS contract prices rolled over in October and is now set to slide lower. The November negotiation will be around the question - how much. Import EPS is being aggressively marketed by Asian producers. Domestic producers saw many orders at the end of October simply vanish. ABS contract prices fell four cents per pound in October as demand and raw material prices eroded. Increased imports from Asia are adding downward pressure to prices. PET Pricing in October has fallen an aveage of 9 cents per pound from September with raw amteiral based contracts falling around cents per pound demand remains extremely week. W. europe MArKet highlights demand Price Polyethylene contracted prices declinded significantly in October, as resin producers began to calculate prices on the basis of integrated margins with the steam crackers, which remain extremely high. The average drop for the month totaled 25 per MT. A fight to maintain market share occured in the face of very weak demand, credit restraints and very low spot market offers for both domestic and import resin. All signs point downwards. Polypropylene demand had been faring marginally better than for poylethylene. However, slowdowns in important demand sectors, such as the automotive industry, the loss of export markets, as well as increased imports at very low prices have created a downward spiral in PP demand and prices. PP contract prices declined by a total of 1 per MT during October. Propropylene plants operating rates are being reduced. Slowly but surely PVC is being infected by the same malaise affecting other commodity thermoplastics. After falling on average 1 per metric ton in September, the PVC lost a further 6 per metric ton in October. Demand weakened considerably in October with little hope of improvement as we approach year end. Demand was a bit better then in September but remains far behind expectations. The price levels remain under pressure and the average PS price decreased by 9 per ton. The operating rates are down to 7-75 percent. Prices have been under pressure and decreased by 1 per metric ton. The demand peak is over and suppliers are reporting disappointing order entry in all regions. On the back of the collapsed styrene price the contract negotiations have been quite difficult. Demand is declining on the back of weaker automative production. Supply has been stable though with lower costs and stable prices for October producers positions have improved somewhat. Pet Prices dropped by 665 per ton between October. Price negotiations have been difficult as feedstocks are in a sharp downward trend. Demand remains weak and market players are reporting negative growth rates in all countries. Suppliers operating rate are extremly low and some units are down. Pe PP PvC PS eps ABS Pet ASiA PACiFiC MArKet highlights demand Price Regional market prices collapsed by around 3 percent from the start of the month to the end of the month. Petrochemical producers are running at negative margins due to a disconnect between feedstock costs and resins prices, many have started, or planning to shut down units to seek balance in supply/demand and stability in prices. PP prices fared worsed than PE with the collapsed during the month reaching around 4 percent. Compared to the peak this year (above $2/ton); spot prices at the end of the month have dipped to between $7-$75/ton and still sliding. Petrochemical producers, faced with the disconnect between feedstock costs and resin prices, are shutting down units to avoid further losses and also to help with the inventory reduction effort. PVC prices were under enormous pressure as demand seems to have vanished from the market. The reduction in operating rates in most major producers sites has not had the intended effect of stabilizing prices. GPPS prices are about $5 per ton down over last month, with levels now in three digits for the first time since early 24. Demand is close to non-existent as buyers await further price decreases. The spread over November spot styrene remains in excess of $4 per ton, which cannot last. EPS prices have crashed to a five-year low in the high $8s per ton. EPS is cheaper than GPPS for the time being with Chinese producers offering competitively. Demand is very weak and major producers are cut back to unusually low operating rates. ABS has been as weak as PS, if not weaker. Severe production cutbacks are hardly making any impression on market inventory as consumer off-take is so depressed. Prices are mostly in the $1,5s but are not finished falling yet. Demand weakened significantly across the month. Prices frell around $2 to $25 per ton with spot export prices as low as the mid 9s. November 6, 28/ Issue No. 128 Page 2

3 November 6, 28/ Issue No. 128 Page 3 Product GLOBAL PLASTICS & POLYMERS REPORT: Month Ending Pr ice Index October 28 NORTH AMERICA Price Designator Grade US$/MTon Cts/Lb Low Density PE General Purpose, Film 1,94-1, Heavy Duty Film, Frac. 1,962-2, Extrusion Coating 2,94-2, Linear Low Density PE Butene, Film 1,764-1, Hexene, Film 1,852-1, Octene, Film 1,896-1, G.P. Injection Molding 1,918-1, High Density PE Blow Molding (Copoly) 1,874-1, Injection Molding 1,786-1, High Mol. Weight Film 1,83-1, Polypropylene Inj. Molding (Copoly) 1,951-2, Inj. Molding (Homopoly) 1,896-1, Slit Tape Grade (Raffia) 1,88-1, Polystyrene General Purpose 2,568-2, General Purpose 1,894-1, High Heat Crystal 2,59-2, High Heat Crystal 1,916-1, High Impact PS 2,71-2, High Impact PS 2,26-2, EPS General Purpose 2,59-2, General Purpose 2,161-2, ABS Injection Molding 2,844-2, Injection Molding 2,513-2, Pipe 2,734-2, Polyvinyl Chloride Rigid Pipe, Forecast 1, Rigid Pipe General Purpose, Forecast 1, PET Bottle Grade 1,819-1, Note: The prices presented herein are strictly the opinion of CMAI and are based on information collected within the public sector and on assessments by the CMAI staff. CMAI makes no guarantee or warranty and assumes no liability as to their use. Price Description Terms Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; HC Bulk, Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Spot-export; Delivered Contract-market; Delivered; Ex-discounts, rebates Spot-export; Delivered Contract-market; Delivered; Ex-discounts, rebates Spot-export; Delivered Contract-market; Delivered; Ex-discounts, rebates Spot-export; Delivered; Ex-discounts, rebates; Duty paid Contract-market; Delivered; Ex-discounts, rebates Spot-export; Delivered; Ex-discounts, rebates; Calculated Contract-market; Ex-discounts, rebates Forecast-Not Settled Contract-market; HC Bulk, Delivered Spot-export; HC Bulk, FOB Forecast-Not Settled Contract-market; HC Bulk, Delivered Contract-market; Delivered; Benchmark-non discounted Bottle Grade 1,576-1, Contract-large buyer net trans, commodity resin, dlvd to EC Bottle Grade 1,398-1, Spot Asian Import; delivered West Coast; Duty paid EXCHANGE RATES-PER US $: Month ending UK.615 Euro.778 Japan Monthly Pricing Global Plastics & Polymers Market Report PRICE PAGES

4 November 6, 28/ Issue No. 128 Page 4 GLOBAL PLASTICS & POLYMERS REPORT: Month Ending Pr ice Index October 28 WEST EUROPE Price Designator Product Grade US$/MTon Euro/MTon Low Density PE General Purpose, Film 1,66-1,645 1,25-1,28 Linear Low Density PE Butene, Film 1,619-1,677 1,26-1,35 Octene, Film 1,728-1,773 1,345-1,38 High Density PE Blow Molding (Copoly) 1,587-1,651 1,235-1,285 Injection Molding 1,516-1,581 1,18-1,23 High Mol. Weight Film 1,6-1,651 1,245-1,285 Polypropylene Injection Molding (Copoly) 1,66-1,683 1,25-1,31 G. P. Injection (Homopoly) 1,542-1,619 1,2-1,26 Slit Tape Grade (Raffia) 1,491-1,568 1,16-1,22 Staple Fiber Grade 1,491-1,568 1,16-1,22 Polystyrene General Purpose 1,542-1,593 1,2-1,24 High Heat Crystal 1,564-1,615 1,217-1,257 High Impact PS 1,66-1,658 1,25-1,29 EPS General Purpose 1,677-1,741 1,35-1,355 General Purpose 2,14-2,19 1,665-1,74 ABS Injection Molding 2,249-2,377 1,75-1,85 Compounding 1,735-1,863 1,35-1,45 Compounding 2,441-2,541 1,9-1,977 Polyvinyl Chloride Suspension Rigid Pipe 1, PET Bottle Grade 1,338-1,42 1,41-1,91 Bottle Grade 1,281-1, ,3 EXCHANGE RATES-PER US $: Month ending UK.615 Euro.778 Japan Note: The prices presented herein are strictly the opinion of CMAI and are based on information collected within the public sector and on assessments by the CMAI staff. CMAI makes no guarantee or warranty and assumes no liability as to their use. Price Description Terms Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates; Duty unpaid Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Spot-export; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates Contract-market; Delivered; Ex-discounts, rebates; Duty unpaid; Natural Spot-export; Delivered; Ex-discounts, rebates; Duty unpaid; Natural Delivered Contract-market; Delivered; Ex-discounts, rebates; Duty paid Spot; Delivered; Duty paid Global Plastics & Polymers Market Report PRICE PAGES

5 November 6, 28/ Issue No. 128 Page 5 Product GLOBAL PLASTICS & POLYMERS REPORT: Monthly Average Price Index October 28 ASIA & THE PACIFIC Price Designator Grade Low Density PE General Purpose, Film 9-1, Linear Low Density PE Butene, Film 8-1, High Density PE Injection Molding 79-1, Blow Molding (Copoly) 8-1, High Mol. Weight Film 8-1, Polypropylene Inj. Molding (Copoly) 74-1, G. P. Injection (Homopoly) 7-1, Slit Tape Grade (Raffia) 7-1, Film Grade 72-1, Polystyrene General Purpose 1,299-1, High Impact 1,399-1, EPS General Purpose 1,5-1, ABS General Purpose 1,6-1, Polyvinyl Chloride Suspension Rigid Pipe PET Unapproved Btl. Grade 1,96-1, Approved Btl. Grade 1,132-1, EXCHANGE RATES-PER US $: Month ending UK.615 Euro.778 Japan US$/MTon Cts/Lb Price Description Terms Note: The prices presented herein are strictly the opinion of CMAI and are based on information collected within the public sector and on assessments by the CMAI staff. CMAI makes no guarantee or warranty and assumes no liability as to their use. Spot-average; CFR China; Duty unpaid; Month-to-date range Spot-average; CFR China; Duty unpaid; Month-to-date range Spot-average; CFR China; Duty unpaid; Month-to-date range Spot-average; CFR China; Duty unpaid; Month-to-date range Spot-average; CFR China; Duty unpaid; Month-to-date range Spot-average; CFR China; Duty unpaid; Month-to-date range Spot-average; CFR China; Duty unpaid; Month-to-date range Spot-average; CFR China; Duty unpaid; Month-to-date range Spot-average; CFR China; Duty unpaid; Month-to-date range Spot-export; CFR China Spot-export; CFR China Spot-export; CFR China Spot-export; CFR China Spot; CFR China; Under negotiation Spot; FOB Export Spot; FOB Export Global Plastics & Polymers Market Report PRICE PAGES

6 Methodology Reminder: As stated in various locations on our price tables, either by label or footnote, the contract resin prices posted for North America and West Europe reflect an index or marker for prices before discounts, rebates, incentives, etc. The Asia / Pacific spot price postings are based on market activity for the various resins within the representative region. For further clarification or definition of any posted resin price or index in the Global Plastics & Polymers Report please contact any of the appropriate product consultants listed on page six of the report. A comprehensive study of the world polyolefins industry to WORLD POLYOLEFINS ANALYSIS For information or to order your copy, contact CMAI at or cmai@cmaiglobal.com. CHEMICAL MARKET ASSOCIATES, INC. Houston - New York - Dubai - Düsseldorf - London - Shanghai - Singapore Excellence Excellence & Experience & Experience in Petrochemical in Consulting Consulting since 1979 since Chemicals - Plastics - Fibers Consultant Contact Information Howard Rappaport Polyolefins (1) HRappaport@cmaiglobal.com Bob Dennett PP/PE (1) BDennett@cmaiglobal.com Nick Vafiadis PE/PP (1) NVafiadis@cmaiglobal.com Esteban Sagel PP/PE (1) ESagel@cmaiglobal.com Mike Smith Eur. PE/PP (49) MSmith@cmaiglobal.com Andrew Ho Asia PE/PP (65) AHo@cmaiglobal.com Bingli Wang China PE/PP (86) BWang@cmaiglobal.com Utpal Sheth M. East/India PE/PP (971) USheth@cmaiglobal.com Peter Feng PS/ABS (1) PFeng@cmaiglobal.com Martin Wiesweg Eur. PS/EPS (44) MWiesweg@cmaiglobal.com Matthew Thoelke Eur. PS/ABS/EPS (44) MThoelke@cmaiglobal.com Vince Sinclair Asia PS/ABS/EPS (65) VSinclair@cmaiglobal.com Steve Brien PVC (1) SBrien@cmaiglobal.com Marguerite Morrin Eur. PVC (44) MMorrin@cmaiglobal.com Eddie Kok Asia PVC (65) EKok@cmaiglobal.com Cindy Mo China PVC (86) CMo@cmaiglobal.com Chase Willett PET (1) CWillett@cmaiglobal.com November 6, 28/ Issue No. 128 Page 6

7 POLYETHYLENE Ethylene There have been several agreements reached on a U.S. ethylene NT price of 51. cents per pound, a decrease of 12 cents per pound from the September settlement. However, there a small number of significant merchant market consumers who have not accepted this offer, and therefore the October contract price must be viewed as unsettled at this point. October began with spot ethylene prices in the high 5 s cent per pound range, but fell to the mid-2s by the end of the month. In October, naphtha and butane were the favored feeds, while cost behavior for the various feedstocks was consistent unlike prior months. Even with a few steam crackers down for hurricane or other operational issues in the U.S., and the rest of the units running at low rates, there was ample supply as reflected by the plummeting spot price. European ethylene and derivative markets are in freefall. It had been hoped during September that the decrease in the Q4 ethylene contract price, from 1228 per ton to 112 per ton, would stimulate derivative demand during October. Instead, the unfolding financial crisis and the recessionary slide of European economies, combined with collapsing oil and naphtha prices, have hit derivative demand hard. Rapid slowdowns in key demand sectors such as the automobile industry and construction are rippling back to affect olefins. Ethylene spot market activity has been very limited as additional volumes are just not required. Notional spot price ideas at the end of September were in the range 9-95 per ton pipeline delivered; this has fallen to 6-62 per ton during the second half of October. The Asia market started out weak in early October with the lingering effects of the long National Day holiday in China and Eid Al-Fitr festival in Southeast Asia. The market quickly deteriorated further through the rest of the month as crude oil prices fell rapidly and demand erosion was rampant due to the impact of the global financial crisis. Market sentiment spiraled downwards with little transactions being done in Northeast Asia as a result of very weak demand from the derivative markets. Towards the end of the month, spot prices tumbled to $6-$7 per metric ton CFR Northeast Asia with no firm bids forthcoming from buyers. Southeast Asia faced similar situation as weakening derivative demand and declining feedstock prices pressured prices down. Ethylene prices were assessed at $52-$58 per metric ton CFR Southeast Asia. Polyethylene NORTH AMERICA Prices - Polyethylene prices in North America are falling fast and appear likely to continue declining through the balance of the year. Most buyers saw October prices decline by eleven cents per pound. We are aware of a few late - month deals that provided an additional two to five cent reduction to some very large buyers, but the majority of the October contract business was done at minus eleven cents versus September. The eleven cent reduction followed a seven cent reduction in September and the combined result erased the eighteen cent cumulative increase that sellers had implemented earlier in the year. regional Price Comparisons Low Density Polyethylene oct-8 Sep-8 oct-7 General Purpose Film Grade (cents/lb) U.S., delivered, bulk railcar Mexico, bagged, U.S. border W. Europe, bulk, delivered China, CFR China Linear Low Density PE oct-8 Sep-8 oct-7 Butene Film Grade (cents/lb) U.S., delivered, bulk railcar Mexico, bagged, U.S. border W. Europe, bulk, delivered China, CFR China High Density Polyethylene oct-8 Sep-8 oct-7 Blow Molding Copolymer Grade (cents/lb) U.S., delivered, bulk railcar Mexico, bagged, U.S. border W. Europe, bulk, delivered China, CFR China As of this writing, we are aware that at least one producer is moving November pricing down by an additional 1 cents per pound from the eleven cent reduction in October. Those who received the larger reductions November 6, 28/ Issue No. 128 Page 7

8 in October would have the 1 cent November reduction offset by the amount of the incremental October reduction. Spot prices moved down sharply through the month as well. HDPE blow molding and LLDPE butene film grade resins were both available through the spot market at approximately 62 cents per pound by the end of October. LDPE film grade resin was available at about 68 cents per pound at the end of the month. Most resin buyers resisted nonessential resin purchases despite the late month discounting and restricted order quantities to the minimum volumes required to operate in October as they felt November prices were likely to be significantly lower than October. CMAI is forecasting PE resin prices will decline another twenty cents per pound by year end barring any unanticipated spike in energy prices, or major unplanned capacity outages. While resin producers have enjoyed record margins over the last few months, these margins were held artificially high due to several unplanned U.S. based capacity outages. The sky-high margins that resulted from the referenced outages simply did not reflect the lackluster business conditions that have been prevailing in North America and the rest of the world. The tight inventory situation that developed following the hurricanes temporarily masked the underlying weakness in the domestic PE resin market and allowed producers to keep resin prices higher than they would otherwise have been - even POLYETHYLENE north America Monthly Pe Price Changes U.S. LDPE Prices (cents / lb.) oct-8 Sep-8 Change General Purpose Film Grades (11.) - (11.) Heavy Duty Film Grades (Frac.) (11.) - (11.) Extrusion Coating Grades (11.) - (11.) U.S. LLDPE Prices (cents / lb.) oct-8 Sep-8 Change Liner (Butene Copolymer) (11.) - (11.) Liner (Hexene Copolymer) (11.) - (11.) G.P. Injection Molding (11.) - (11.) U.S. HDPE Prices (cents / lb.) oct-8 Sep-8 Change Blow Molding (Copolymer) (11.) - (11.) Injection Molding (11.) - (11.) Film (High Mol. Weight) (11.) - (11.) Price, Cents Per Pound nam hdpe Blow Molding Price vs. Cash Cost -6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Discounted Margin HDPE Contract Price, Discounted Cash Costs Million Pounds total Pe inventory Change Margin, Cents Per Pound Forecast 6 F M A M J J A S O N D 7 F M A M J J A S O N D 8 F M A M J J A S November 6, 28/ Issue No. 128 Page 8

9 while production costs declined dramatically. As such, a significant price delta developed between U.S. markets and China due to the tight supply conditions in the United States. Market (Supply/Demand) - The production capacity outages associated with hurricanes Gustav and Ike lowered resin inventories which were already low, to record low levels. Total PE resin production in the U.S. and Canada during the month of September was slightly less than 1.9 billion pounds. The September production total contrasts sharply with the year-to-date Cents Per Pound lldpe Butene Film Price north America vs. China POLYETHYLENE Dollars Per Metric Ton Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 LLDPE Discounted Contract Price: North America LLDPE Weekly Average: CFR China average production figure of 3.27 billion pounds during the first eight months of the year. A significant percentage of September s resin production occurred in Canada or away from the Gulf Coast as nearly 6 percent of the Gulf Coast PE production capacity was off-line in the weeks immediately following hurricanes Gustav and Ike. In recent weeks, most of the production capacity that was lost as a result of the hurricanes has been restored and resin availability is no longer an issue. Now that product is readily available, buyers are focusing on the dramatic decline in resin production costs that developed following the hurricanes and are pushing hard for price reductions that reflect these changes. CMAI models suggest that the weighted average monthly cash cost to produce ethylene in the U.S. has fallen more than forty cents per pound during the July to October timeframe. Trade - While final trade figures for September were not available at the time of this writing, current estimates suggest that PE resin exports from the U.S. and Canada during September was approximately 57 million pounds. This level of exports contrasts sharply with the year to date monthly average of 85 million pounds. While product available for exports was limited due to the previously referenced supply constraints, most of the September export volume was directed to Latin America as demand for U.S. and Canadian product in China and Europe appears to have virtually vanished. In addition, North American exporters are facing increased competition from Asian producers seeking to place aggressively priced product into Latin America. October export volume is expected to be low as well. The relative high resin prices prevailing in North America have captured the attention of several offshore producers. We are beginning to pick up anecdotal evidence of an increase in resin imports from Thailand and Korea. Other foreign producers are also known to be evaluating short-term arbitrage opportunities in the North American market. Some buyers have reported that they have purchased imported resin at prices that reflect a discount of as much as twenty cents per pound relative to the prices they are paying their domestic contract suppliers. The last time we saw buyers actively pursuing resin imports was during the period following hurricanes Rita and Katrina in 25. The threat of increased resin imports into a market that is in the process of tran November 6, 28/ Issue No. 128 Page 9

10 POLYETHYLENE sitioning from a period of relative tight supply to a period of unprecedented oversupply should do much to quickly move North American prices in line with international prices while simultaneously compressing the currently over-inflated resin producer margins. While October sales results are not yet available, domestic sales of HDPE resin are estimated to have totaled 1.5 billion pounds in September. The September domestic sales total is about 11. percent below the year to date average. The anemic sales volume is the result of constrained production and reduced demand. For the most part, resin buyers simply minimized purchases as they expected near term price declines. Domestic sales of HDPE resin through September are approximately 8.8 percent below 27 year to date volumes. Blow molding represents the single largest end use market for HDPE and sales to that market are approximately 1.3 percent below 27 year to date levels. Injection molding grade sales are also down by about 9.4 percent for the year. Export volumes for September are estimated at 3 million pounds and this total represents a decrease of approximately 1 percent versus the year to date monthly average. October export volumes are also expected to be well below the previous year to date monthly average. The hurricane related production constraints resulted in an inventory decrease of almost 42 million pounds despite the diminished demand. HPDE production during September was only 5.1 percent of capacity in the U.S. and Canada during September. Domestic sales of LLDPE resins for producers in the U.S. and Canada during September were estimated to be 753 million pounds. The September sales estimate is about 24 percent higher than August volume which represented the low point for the year to date. Domestic sales are currently 8 percent below 27 levels. The sales reduction is evident in virtually every end use application for LLDPE resins. Export volumes in September decreased versus August, but U.S. & CANADA HDPE MARKET SUMMARY Sep-8 ytd 8 ytd - % Change (MM lbs) (MM lbs) vs 7 vs 6 Production , Total Supply 83 12, Domestic Sales 1,5 1, Total Sales 1,25 13, Inventory Change Sep-8 Sep-7 Sep-6 Producer Invty (Days) Operating Rate (%) Demand Rate (%) Source: ACC - Plastics Division, U.S. Dept. of Commerce & CMAI estimates. U.S. & CANADA LLDPE MARKET SUMMARY Sep-8 ytd 8 ytd - % Change (MM lbs) (MM lbs) vs 7 vs 6 Production 667 9, Total Supply 677 9, Domestic Sales 753 6, Total Sales 1,33 9, Inventory Change Sep-8 Sep-7 Sep-6 Producer Invty (Days) Operating Rate (%) Demand Rate (%) Source: ACC - Plastics Division, U.S. Dept. of Commerce & CMAI estimates. the year to date export total remains nearly 13 percent above last year s volumes through September. Resin producers in the U.S. and Canada operated at less than 57 percent in September and reduced inventory by an estimated 356 million pounds for the month. LDPE domestic resin demand in the U.S. and Canada during September is estimated to be about 436 million pounds. Like the other resins, this total was well below the year to date monthly sales average. The September demand estimate is actually about 4 percent above August levels. Export volumes were approximately 9 million pounds which represents a reduction of almost 5 percent versus the year to date monthly average volume. LDPE resin demand is down versus 27 in every key end use application except for November 6, 28/ Issue No. 128 Page 1

11 non-packaging film. Total sales volume through September is approximately 6.3 percent below 27 year to date volumes. LDPE inventories increased significantly in August as producers added approximately 82 million pounds of inventory to the system. Mexico Prices October has seen the beginning of what is expected to be a rapid and large decline in polyethylene prices in Mexico. The month began with offers that in general matched the prices from September, but as the month went by it was clear that prices would not hold. Endless negotiations with suppliers have been the norm, with converters attaining price breaks even after deals had apparently been closed. Prices for polyethylene dropped an average of 7 cents per pound, with GP LDPE ending at 72 cents per pound, LLDPE butene at 67 cents per pound, and HDPE BM at 68 cents per pound. November is expected to be even more difficult for producers; early offers for November deliveries are between 11 and 14 cents lower than the October prices. POLYETHYLENE Market (Supply/Demand) Demand is Mexico is way off. The converters confidence in the economy is very low, and they are only purchasing what is strictly necessary. In fact, some converters are even idling lines; they are expecting important price reductions for November and they see no use in building inventories of raw materials or finished products that would not be competitive when the new prices are established. Further difficulties related to credit availability, at least early in the month, were only compounding the demand issues. Importers have also been impacted by the strengthening of the U.S. dollar, that has made imports not competitive to the domestic prices offered by Pemex, forcing importers to continuously reduce their price expectations. West Europe U.S. & CANADA LDPE MARKET SUMMARY Sep-8 ytd 8 ytd - % Change (MM lbs) (MM lbs) vs 7 vs 6 Production 44 5, Total Supply 414 5, Domestic Sales 436 4, Total Sales 526 5, Inventory Change Sep-8 Sep-7 Sep-6 Producer Invty (Days) Operating Rate (%) Demand Rate (%) Source: ACC - Plastics Division, U.S. Dept. of Commerce & CMAI estimates. Cents per pound 32 hdpe /PP Price delta U.S. Gulf Coast (Contract) Minus Mexico Jan-6 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 HDPE Delta PP Delta Prices Both spot and contract polyethylene prices crashed in October. Producers seemed desperate to move volumes and made bold efforts to bring in orders. But prices remained under pressure, due both to buyers holding out for even lower prices later in the quarter and to increased availability of cheaper imported material from Asia and other regions. Producers began making their offers based on integrated ethylene-polyethylene November 6, 28/ Issue No. 128 Page 11

12 production economics, rather than on ethylene monomer costs, which still produced a positive margin. A fight for market share was unleashed with LDPE the principal target. On average, general purpose LDPE film grade prices fell by 26 per metric ton to per metric ton, butene-based LLDPE dropped 24 per metric ton ending up at per metric ton, and HDPE for blow molding lost 25 per metric ton to come in at per metric ton. POLYETHYLENE West European spot prices decreased steadily during October, but there was little indication that this generated additional demand. You could say that price-demand elasticity was for all intents and purposes fairly close to zero. Furthermore, spot offers were all across the board with widely differing prices and conditions. PE spot prices were down by as much as 3 per metric ton. Average month-end spot prices quoted at 15 per metric ton for general purpose LDPE film grade and at 185 per metric ton for butene-based LLDPE. Spot prices for HDPE injection molding grades have dropped more than 25 per metric ton since September and by end-october were quoted as low as 18 per metric ton. No one wants to purchase polyethylene right now, if they can avoid it. There is too much uncertainty in the market and, until recently, PE prices were being kept artificially high by the West European system of quarterly contract prices for ethylene feedstock monomer. Resin producers have begun to address this issue by making their calculations based on integrated steam cracker-polyethylene margins. Looking ahead, CMAI forecasts a Brent oil price in Q1 of approximately US$65 per barrel. All things being equal, this could result in the ethylene price falling from its current level of 112 per metric ton to 8 per Euros Per MetricTon 1,75 1,5 1,25 1, West europe Monthly Pe Price Changes WEP LDPE Prices ( / mton) oct-8 Sep-8 Change General Purpose Film Grades 1,25-1,28 1,51-1, WEP LLDPE Prices ( / mton) oct-8 Sep-8 Change Liner (Butene Copolymer) 1,26-1,35 1,5-1, Liner (Octene Copolymer) 1,345-1,38 1,585-1, WEP HDPE Prices ( / mton) oct-8 Sep-8 Change Blow Molding (Copolymer) 1,235-1,285 1,485-1, Injection Molding 1,18-1,23 1,44-1, Film (High Mol. Weight) 1,245-1,285 1,55-1, West europe lldpe Butene Film Price vs. Cash Cost -25 Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Cash Margin LLDPE Contract Price Total Cash Costs Forecast metric ton or even lower. Polyethylene prices will decrease by a similar order of magnitude, with a major portion of the reduction to be conceded over the final two months of 28. Market (supply/demand) - The only good thing about the current market situation is that some processors still report relatively good demand for finished goods, particularly in the food packaging sector. Apparently in times of economic uncertainty, people are more prone to eat at home, which increases the demand for November 6, 28/ Issue No. 128 Page 12

13 POLYETHYLENE pre-packaged foodstuffs (often purchased at discounters). Apart from that, there is nothing good to report. Demand plummeted in August and has not recovered since. Year-to-date sales by domestic West European producers through September are down considerably compared to 27 levels. Year-to-date LDPE sales are down 1 percent, LLDPE sales have dropped 5 percent and HDPE sales have slipped 8 percent compared to 27. It should be noted that sales of LLDPE have only fared better than the other two polyethylene grades, because LLDPE imports are 43 percent below 27 volumes. 28 will go down in history as the first year that LLDPE domestic demand actually took a significant hit of more than 1 percent. Inventory levels for all three PE types at the beginning of October were basically flat compared to the previous month, with only LLDPE exhibiting a slight upward trend. Polyethylene producers paid heed to the signs of increasing inventories in August and reduced PE production rates by an estimated 15 percent in September. Overall, PE inventories are more than adequate to supply the current depressed demands of the market between seven and eight weeks of sales - and shortages are not expected for the foreseeable future. Expect further production cuts as we approach year-end. Looking ahead to the rest of 28, it would be unrealistic to expect a pick-up in business activity. The oil price has more than halved relative to its mid-year peak and the world is wrestling with the likelihood of serious economic slowdown in 29. Why buy and produce now, when resin prices are widely expected to be lower in the New Year? Trade - 28 has been a year divided into two distinct parts. The first half of the year was characterized by strong Asian demand and limited availability. Since August, however, the market has gone into reverse, with demand, prices and trade going into a steep deceleration. Trade data for West Europe through July 28 are now available. The chart shows the year-to-date exports and imports of total polyethylene, broken down by product grade from 26 through 28. Total PE imports in the first seven months of 28 totaled 1236 thousand metric tons which is 25 percent lower than in the same period in 27 and 19 percent lower than in 26. As can be readily seen in the chart, LDPE imports, which currently make up 23 percent of total imports, have been basically flat over the last three years. West Europe imported 3 thousand metric tons of LLDPE from January through July 28, which was 43 percent less than the previous year. HDPE imports were 647 thousand metric tons, or 52 percent of total PE imports. HDPE imports fell off 23 percent from 27. A large part of the decline can be explained by looking at PE imports from Saudi Arabia, which fell by more than half on a year-to-date basis, from 67 thousand metric tons in 27 to 287 thousand metric tons in 28. Polyethylene exports from West Europe actually increased in the period January through July 28 compared to the previous two years, by 7 and 14 percent respectively. With total YTD exports of 1399 thousand metric tons, West Europe unexpectedly has once again become, for a short period, a net exporter of PE. The root cause of this surprising development was the aforementioned drop in imports and not a big jump in exports. Nevertheless, while LL- DPE and HDPE exports remained basically flat, LDPE exports did gain over 2 percent in the January Thousand Metric Tons 2 exports imports West europe Polyethylene trade ytd January-July HDPE Imports LLDPE Imports LDPE Imports HDPE Exports LLDPE Exports LDPE Exports Net Trade November 6, 28/ Issue No. 128 Page 13

14 POLYETHYLENE to July 28 period, compared to the previous year. Primary destinations for West European LDPE are Poland, Turkey, China, Egypt and Russia, which accounted for 223 of the total 535 thousand metric tons exported. Recently, West Europe has been flooded with low-priced offers for all grades of polyethylene from Asia, the Middle East and other countries. Iranian material is beginning to become more noticeable. Exports have nosedived and imports are on a sharp upward incline. Focus on Crude oil & PE prices re-visited four months later - The last time we wrote about the relationship between crude oil and polyethylene prices in June, the Brent crude oil price had just climbed to above $14 per barrel. This was very disturbing. Perhaps even more unnerving is the fact that as of writing this analysis, the oil price has slipped back to $63 per barrel, just about where it was in the summer of 27. How things change. What does this mean for polyethylene prices on the downward slope of the curve? The analysis in the adjacent chart is based on monthly average data from 24 to the present. The correlation suggests that every one dollar change in the price of crude translates into a $17 per metric ton change in the non-discounted HDPE monthly contract price in West Europe. Admittedly, the correlation is far from perfect, since polyethylene is three processing steps away from crude oil (refinery, steam cracker and polymerization). The equation is further complicated by the fact that oil and naphtha prices are quoted daily, ethylene prices on a quarterly basis and resin prices monthly. Assuming the trend holds true, then at $6 per barrel crude oil, the HDPE contract price could be expected to come in at $14 or 195 per metric ton at the current exchange rate of 1.28 /$. While the relationship is not entirely robust, the direction is clear: polyethylene prices will invariably come down just based on the drop in the oil price. Middle East Brent Crude, Dollars Per Barrel 14 Note: the correlation is based on monthly price data and exchange rates over the period Jan-4 to Oct-8 12 May to Jul West europe high density Polyethylene vs. Brent Crude 146 $ october 28 Gradient of the line gives about $17/t increase of the HDPE contract price for each one dollar increase in the crude oil price $ HDPE Blow Mldg Contract Price, Dollars Per Metric Ton Average Weekly Polyethylene Concluded Middle east Spot Prices october 28 CFR Dubai Spot Price ($/MT) Week1 Week2 Week3 Week4 Week5 Avg. Spot ldpe - GP Film 1,65 1,65 1,63 1,62 1,19 1,548 lldpe - Butene Film 1,59 1,59 1,57 1,525 1,5 1,465 hdpe - hmw Film 1,575 1,575 1,55 1,525 1,25 1,45 CFR Mumbai Spot Price ($/MT) Week1 Week2 Week3 Week4 Week5 Avg. Spot ldpe - GP Film 1,575 1,56 1,525 1,3 1,18 1,428 lldpe - Butene Film 1,51 1,44 1,36 1,9 1,3 1,286 hdpe - hmw Film 1,49 1,42 1,32 1,9 1,1 1,266 Note: CFR Dubai & Mumbai spot prices are posted as of every Wednesday evening. Prices - Polyethylene prices declined an unprecedented 3 percent during October versus their prevailing level as of the last week of September. The October reduction was much steeper than those which November 6, 28/ Issue No. 128 Page 14

15 POLYETHYLENE occurred during August and September. Lower production cash costs due to declining prices of naphtha and ethylene, extremely bearish market sentiments associated with the global economic slowdown, and weak finished goods demand were the major factors responsible for the October price decrease. The global credit crisis also affected order bookings as some converters and traders had insufficient credit to book new orders, and petrochemical companies were not willing to sell material on open credit terms. Producers inventory levels in the Middle East and India have been rising gradually. Many of the producers in Asia have reduced operating rates by as much as 25 percent in order to control inventory levels and stabilize market prices. However, these efforts have failed. What s more, this action contributed to a reduction in demand for naphtha. Naphtha prices fell below $4 per metric ton by the end of October. Lower naphtha prices are pulling down ethylene and polyethylene prices. In the Middle East, Gulf based producers were following a monthly pricing policy. This policy benefited the producers in a relatively stable market. However, in the current volatile market, prices are falling daily in Asia. The stable monthly pricing policy in the Middle East resulted in widening the gap between prices prevailing in the Middle East and Asia. Converters in the region were also affected by this monthly pricing policy, as they must book their requirements with the producers in a rapidly declining market. While the monthly pricing policy continues in theory, Gulf based producers have become more active in the market and have recently started offering spot prices to large converters by the mid- month in order to boost sales. Also, some Gulf based producers have started offering price protection to converters in order to boost market confidence and persuade converters to book their entire monthly requirements. Due to this price protection, converters are insulated against price declines during the period between order booking and product shipment. During the last week of October, Gulf based producers announced a huge price reduction of almost $4 per metric ton for November deliveries to the Middle East market. This steep price fall has bridged the price gap prevailing in the region with polyethylene prices in Southeast Asia. In India, the intensity of price erosion continued to be high during the entire month of October, as inventory increased with the domestic producers. Polyethylene demand growth has slowed considerably during Q3 due to a slowdown in the economy which has resulted in lower sales by domestic and foreign polyethylene producers. Domestic producers reduced polyethylene prices by 22 to 25 percent during the month and still couldn t revive demand. Middle East and Asian producers have intensified their marketing efforts to sell higher volumes in the country and increase their market share in India. Crude oil prices have witnessed a major fall from around $1 per barrel at the start of October to almost $65 per barrel by month end. This sharp reduction of 35 percent during the month has resulted in equally steep declines in naphtha prices which are now below $4 per metric ton. Ethylene prices have also declined and are now about $55 per metric ton. Naphtha and ethylene prices should stabilize as soon as crude oil prices level off. Polyethylene prices will likely take several weeks to stabilize as a wide gap remains between ethylene and polyethylene prices in the Middle East and India. Moreover, all producers are holding a huge inventory which is resulting in aggressive pricing. Demand for polyethylene has also taken a major hit during the last few months which is unlikely to improve in the near future due to the slowdown of the global economy. Polyethylene prices in the Middle East have fallen drastically during the last 3 months. However, the drop in ethylene and naphtha prices has been more severe during this period. While margins for the nonintegrated polyethylene producer sourcing ethylene from outside may have improved, they have suffered immensely due to very poor demand. Thus, inventory with all polyethylene producers has increased during the period which has forced many producers in Asia to reduce operating levels. Integrated polyethylene November 6, 28/ Issue No. 128 Page 15

16 units producing their own ethylene from naphtha have been hit even more severely as the price spread between naphtha and ethylene has narrowed to unsustainable levels. This has forced many naphtha crackers to either lower their operating levels or take a brief shutdown until the market scenario improves. However, the Middle East based producers have not been affected by this fall due to their low and advantageous feedstock price. U.S. Dollars Per Metric Ton 2,2 2, 1,8 1,6 1,4 1,2 1, hdpe & Feedstock Price trend POLYETHYLENE Market (Supply/Demand) - Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 Polyethylene availability in the Middle East and India was ample in October, as all producers are Naphtha, C&F Japan Ethylene, FOB MDE HDPE, CFR MDE now operating at optimum capacity levels. Exports were subdued from all producers resulting in sharp increases in polyethylene inventory. In the Middle East, polyethylene producers have a distinct production cost advantage over naphtha based producers in Asia and Europe. Due to this cost advantage, they will continue to operate at full capacity even while several crackers in Asia have reduced rates due to poor demand and margins. Order bookings were subdued in the Middle East and India as converters didn t want to keep higher stocks in a declining price scenario. In the Middle East, order bookings were low due to inventory corrections at all stages of the value chain from converters to retailers. However, there has been no indication of a slowdown in end product demand. In contrast, demand for finished products in India has been severely affected due to the slowdown of the economy. Trade - China is the most important export market for the polyethylene producers in the Middle East and India. More than 26 percent of the polyethylene imports in China in year 27 were sourced from the Middle East and India. Imports from these two regions declined drastically during the first 9 months of 28 compared to the same period in 27 while overall imports by China have fallen marginally during the same period. This has reduced the share of polyethylene imports into China from the Middle East and India to less than 23 percent in 28. Production problems Thousand Metric Tons 18 Exports to China Jan - Sept 7-8 Change 28 Jan - Sept MDE & ISC = 922 KT 15.5 % 788 KT WORLD = 3,491 KT 1.5 % 3,437 KT Pe exports from Mde & isc to China Jan to September 27 through 28 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 India Iran Kuwait Saudi Arabia UAE Qatar November 6, 28/ Issue No. 128 Page 16

17 POLYETHYLENE in many Middle East polyethylene plants during 28 affected the availability of material which resulted in lower export volumes to China. Domestic consumption of polyethylene has also grown rapidly in the Middle East and India which has reduced the amount of material available for export. In Q3 28, there was a drastic fall in imports by China. The referenced reduction was due to demand destruction caused by high raw material prices and poor demand for exports of finished goods to developed countries. In 29, a tremendous amount of new polyethylene production capacity will begin operations in the Middle East. Due to their favorable production cash cost structure, they will be able to gain a high market share in the China market. India s share of the China market is likely to be reduced further in 29 as they will be focusing on their growing domestic market and also because it will be difficult to compete with the low cost Middle East producers in the highly cost sensitive China market. Asia Average Weekly Polyethylene Concluded Spot Prices CFr China Month: September Shipment Week 1 Week 2 Week 3 Week 4 Avg. Spot ldpe - GP Film 1,775 1,725 1,66 1,575 1,684 lldpe - Butene Film 1,675 1,595 1,525 1,44 1,559 hdpe - Blow Molding/Film 1,695 1,615 1,53 1,47 1,578 Month: october Shipment Week 1 Week 2 Week 3 Week 4 Week 5 Avg. Spot ldpe - GP Film 1,575 1,525 1,35 1, ,295 lldpe - Butene Film 1,44 1,315 1, ,156 hdpe - Blow Molding/Film 1,47 1,325 1,275 1, ,187 Note: CFR China spot prices are posted as of each Thursday evening in Asia. ($/MT) Asia Pacific Monthly Pe Price Changes ASP LDPE Prices ($ / mton) oct-8 Sep-8 Change General Purpose Film Grades 9-1,6 1,55-1, ASP LLDPE Prices ($ / mton) oct-8 Sep-8 Change Liner (Butene Copolymer) 8-1,45 1,43-1, ASP HDPE Prices ($ / mton) oct-8 Sep-8 Change Injection Molding 79-1,48 1,44-1, Blow Molding (Copolymer) 8-1,49 1,45-1, Film (High Mol. Weight) 8-1,49 1,45-1, Prices - Polyolefin market prices collapsed during October, mirroring the steep plunges seen for crude oil (and naphtha prices) and for the global stock markets. Comparing market prices at the start and the end of the month, domestic and import prices have fallen by around 3 percent. LDPE and LLDPE (using butene grades as the reference) market prices have been worst hit compared to HDPE film grades. Using the East China region as the reference, prices for LDPE GP grades have fallen from RMB12,5-RMB12,9 per metric ton at the start of the month to RMB7,8-RMB8,2 per metric ton by the end of the month. Similarly, LLDPE butene grades have fallen off the cliff from RMB12,4-RMB12,6 per metric ton at the start of the month to RMB7,3-RMB7,6 per metric ton at the end the month. Both grades have seen market prices decline by around one-third in a single month. Compared to LDPE and LLDPE, HDPE film grades are faring slightly better, despite falling from RMB12,8-RMB13,4 per metric ton at the start of the month to RMB9,-RMB9,8 per metric ton at the end of the month. Not surprisingly, import prices (CFR China) have also taken a beating with LDPE, LLDPE and HDPE prices losing around one-third with most of the decline seen during the second half of the month. At the end of October, LDPE GP grades were traded at around $9-$1, per metric ton while LLDPE and HDPE film grades were around $8-$85 per metric ton. As many regional producers rely heavily on the Chinese import markets, the steep decline in import prices was contagious, spreading quickly to the rest of November 6, 28/ Issue No. 128 Page 17

18 POLYETHYLENE the region. The steep collapse of market prices has spooked many buyers and caused a loss in confidence, with converters avoiding holding any significant amount of inventory. Buying patterns have changed to a higher frequency (for example, from monthly to weekly or from weekly to daily) and parcel size has shrunk. Inevitably, resin inventory is mainly transferred back to the hands of the petrochemical producers with traders and plastics processors in inventory reduction mode. The next inevitable questions is: where is the bottom and when will the market rebound? At the time of writing, it is understood that there could be interest from the traders/large buyers to rebuild their PE inventory when market prices drop to around the level of $7-$8 per metric ton CFR China/Southeast Asia. This is based on the assumption that underlying crude oil prices remain stable at the current levels. Based on current economics, naphtha-based crackers in Asia are not making any money due to the incompatible combination of high feedstock costs (costs of naphtha were based on previous high oil prices) with fast declining olefins and polyolefins prices. The major petrochemical producers in China are understood to be planning to cut production by around 15 percent in the following month due to economics and inventory pressures, with similar actions likely to be taken by the regional producers as well. These actions should provide support to market prices and optimistically bring about stability, or even a rebound for market prices to move back to a reasonable level that is consistent with the underlying feedstock costs. Market (Supply/Demand) - PE production in China has increased by.7 percent when comparing January to September 28 to the same period in 27. Monthly production fell in the month of June 28 due to unplanned plant outages associated with the Maoming cracker, but it recovered in the following months. However, production levels have been declining since August (after the spike in July) and the decline will be even more evident in the coming months with the planned production cuts in November. Year-to-date imports have remained relatively similar to the same period a year ago, and if this continues into the following year, regional producers will face greater challenges to compete in the imports market with new producers from the Middle East region as well as threats of substitution due to imports of scrap for recycling and domestic recycling efforts. In terms of new capacity, there is new PE capacity starting up within the 4Q 28 in China and also in other parts of Asia. The next stage of incremental domestic production in China will be when Fujian Refining & Petrochemical Company Ltd (FREP) starts up in Q1 29 in Fujian, China. Combining domestic production and imports, the total supply yearto-date reached 8.9 million metric tons and represents a mere.3 percent decrease as compared to the previous year. As stated in previous month s report, this indicates that the demand growth based on analysis of virgin resins alone (without considering recycling), has remained relatively flat for the current year-to-date when compared to the previous year. This does not mean that China has reached a matured market status for PE demand, but rather, the plastics processing industry (together with China Plastics Film Production Thousand Metric Tons Growth, % Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 Production Growth compared to 12 months ago November 6, 28/ Issue No. 128 Page 18

19 POLYETHYLENE other industries that consume PE directly or indirectly) have endured a multitude of business challenges which have ultimately led to a slowdown in resin demand growth. Plastics film production in September 28 was 53 thousand metric tons and the cumulative production from January to September was million metric tons (up by 1.32 percent over the same period last year and this is the lowest growth rate seen since 22). Exports for the month of September for shopping bag/sacks were 97.8 thousand metric tons, down by 5.14 percent compared to the same period a year ago. Total exports from January through September were thousand metric tons, a decrease of 4.3 percent over the same period last year (again this is the lowest growth rate in recent history). To spur exports, the export tax rebate of shopping bag/sacks will be increased from current 5 percent to 9 percent effective November 1, 28. Agriculture film production in September 28 was 74 thousand metric China's Agriculture Film Production tons, an increase of 11 thousand metric tons from August level. The cumulative production from January through September was 667 thousand metric tons, down by.74 percent compared to the same period last year. The typical autumn s high demand season did not show up; instead, demand has shrunk due to the global financial crisis coupled with plummeting prices of resin -5 feedstocks. The operating rates for agricultural film production in the -1 month of September remained at 45 to 55 percent; it is a large decrease compared to the same period last Production Growth compared to 12 months ago year. Demand for agricultural film continues to remain soft. Thousand Metric Tons Growth, % -2 Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 Trade - Year-to-date exports of plastic products from China reached 5.65 million metric tons, representing a decline of slightly over 2 percent over the same period a year ago. With the slowdown of the U.S. economy (a major market for Chinese plastics products), rising business costs in China and the upheaval in resin prices, the plastics processing industry is going through an interesting transition with surviving companies emerging as stronger players with less competition in the future. A positive factor will be the opportunity for Chinese processors to spread their efforts to other parts of the world as seen by the increase in the number of sales to other markets such as countries in the FSU, Middle East, Africa and even to the Southeast Asian countries. Another factor will be more focus on domestic consumption - be it coming from retail, consumer goods or other industry products. As the Chinese economy continues to mature, consumers income levels will rise with higher standard of living; therefore, domestic consumption will become more significant, leading to a shift of focus from exports to domestic trade November 6, 28/ Issue No. 128 Page 19

20 Propylene Polypropylene POLYPROPYLENE U.S. PG and CG October benchmark contract prices settled with a decrease of 5 cents per pound relative to the September prices. However, a record price drop is forecast for November as RG prices dropped dramatically to propane price levels, searching for a floor. Splitter margins remained elevated at levels close to the record of 15 cents per pound. RG alky netbacks dropped quickly and dramatically as gasoline prices fell throughout the month. However, due to the fall in RG spot prices, RG to chemicals economics remain unfavorable in all regions. Until demand returns to the market, or the lower RG propylene prices force significant propylene volumes back into fuels, propylene inventories are not likely to fall. European propylene derivative demand has deteriorated considerably throughout October. Countering the poor demand, there are significant propylene supply side issues. Steam cracker propylene production has been hit hard by the ethylene driven operating cuts, and there are a number of FCC unit outages. The net effect is that propylene has been much more balanced than ethylene, but is nevertheless long in aggregate, particularly following the collapse of PP demand. However, there are pockets that are balanced to slightly short, and this has affected the structure of the spot market. By month-end, price ideas for prompt PG material have eased off to per ton CIF. On the other hand, Europe has become an attractive destination for cargoes from Asia and the Americas; however, there have been no takers to date. In Asia, the early October propylene market sentiment turned bearish with news of additional PP operating rates cut from Polymirae and Taekwang s AN unit maintenance turnaround. Despite slight demand recovery from Chinese buyers after the long holiday, buying sentiment continued to fall by the day due to bearish upstream and derivative prices. Cancellation of cargoes, which were committed several weeks ago, created urgent spot cargoes to be fulfilled by traders. Higher domestic contract prices than spot prices resulted in more operation cutbacks from derivative producers. There had been no firm bids due to anticipation of further price declines; buying ideas were at $6-$7 per metric ton CFR Northeast Asia. The overall market sentiment in Southeast Asia was clouded by ample supplies and declining derivative demand. NORTH AMERICA Prices - Normally when you have supply interrupted by hurricanes, prices and costs increase. That didn t happen to the polypropylene industry in September as both propylene and polypropylene prices decreased significantly. Further reductions have occurred in October. The level regional Price Comparisons Polypropylene oct-8 Sep-8 oct-7 Homopolymer Injection Grade (cents/lb) U.S., delivered, bulk railcar Mexico, bagged, U.S. border W. Europe, bulk, delivered China, CFR China of decreases has been difficult to determine as it essentially represents an overall price move of 25. to 27. cents per pound involving the August/October time period. Whatever price movement the buyer incurred in August/September, was adjusted in October to achieve near propylene price movement parity and address weak market conditions.. Therefore, the estimated non-discounted October polypropylene invoice price for general purpose homopolymer used in injection molding applications was in the range of cents per pound for a medium large buyer. Fiber resin prices are cents per pound lower. November 6, 28/ Issue No. 128 Page 2

21 With contract propylene settling rather quickly down 5. cents per pound, spot propylene prices cratered down as much as 2. to 3. cents per pound by the last week of POLYPROPYLENE the month. The strategy of converters/end users has been to delay major purchases until November when prices are expected to be at the lowest levels since Q3 25. Meanwhile, producers are trying to avoid building inventories by selling excess inventory in the spot or export markets and restricting production. They will try to hold margins as long as possible; polypropylene price projections have PP generally moving with propylene, but weak demand and poor operating rates will impact margins as well by shrinking the propylene-polypropylene differential. The large volume of new capacity coming on-stream outside of North America currently and in the next few years is enough to drive down the global operating rates and shrink producer margins. However, when you combine overcapacity with recessionary economics, the margin erosion may occur quicker unless the producers control supply through inventory management and production cutbacks or shutdowns. Market (Supply/Demand) Domestic demand for polypropylene in North America for September improved slightly over August, only to be the second worst month in 28. Although demand remained lackluster in September, the hurricanes had a negative impact on demand also. Any demand strength was likely due to a need to replenish inventories because of not buying in earlier months in anticipation of lower prices. September production dropped below 1. billion pounds and the industry has not been below that level in over 1 years, not even in 25 when the last hurricanes hit the U.S. PP Prices (cents / lb.) oct-8 Sep-8 Change Injection Molding (Copolymer) (9.) - (9.) Inj. Molding (Homopolymer) (9.) - (9.) Slit Tape Grade ("Raffia") (8.5) - (8.5) Price, Cents Per Pound U.S. Polypropylene vs. Propylene PP-C3, Cents Per Pound 32 Forecast 6 M M J S N 7 M M J S N 8 M M J S N 9 M M J S N 1 M M J S N PP - C3 Propylene PP NORTH AMERICA PP MARKET SUMMARY Sep-8 ytd 8 ytd - % Change (MM lbs) (MM lbs) vs 7 vs 6 Production 95 12, Total Supply , Domestic Sales 1,217 11, Total Sales 1,342 13, Inventory Change Sep-8 Sep-7 Sep-6 Producer Invty (Days) Operating Rate (%) Demand Rate (%) Source: ACC - Plastics Division, U.S. Dept. of Commerce & CMAI estimates. Gulf Coast. High resin producer inventories at the end of August also influenced production scheduling. Industry inventories were reduced by over 36 million pounds in September such that the days sales level at the end of the month was about 37 days. Exports continued to slide in September, unable to match the overseas market prices because of high raw material costs November 6, 28/ Issue No. 128 Page 21

22 POLYPROPYLENE September YTD domestic resin sales were off by over 9. percent compared to the same period in 27. The only major end use segment that was essentially even with last year through September was Film and Sheet. Total industry resin sales (including exports) were nearly 11. percent below last year, as exports were down by 2. percent. Early reports on October were not encouraging as the economic conditions seemed to be a key driving force for demand. In anticipation of much lower prices in November, buyers refrained from purchasing PP where possible. CMAI s current PP forecast for the remainder of 28, 29 and 21 by quarter is one of very modest domestic demand improvement, particularly in 21 when GDP growth strengthens. With the significant price reductions in recent months and more expected in late 28, demand may get a boost and threats of reverse substitution back to other polymers or materials may diminish. Operating rates are dropping to historically low levels and will remain there unless further unit shutdowns occur or demand becomes unusually strong. Trade - Except for January and February, 28 North America exports were very comparable to 27 exports through June. High propylene prices and corresponding PP prices in July and August stifled export opportunities resulting in a significant decrease in volumes trending toward 26 levels. 27 was a record export year for North America due largely to a low propylene price compared to other key regions for most of the year. U.S./Canada/Mexico Polypropylene demand vs. operating rate Thousand Metric Tons Operating Rate, % Q2 Q3 Q4 8 Q2 Q3 Q4 9 Q2 Q3 Q4 1 Q2 Q3 Q4 Domestic Demand Exports Capacity Operating Rate Thousand Metric Tons north America PP exports 5 Propylene prices are dropping in the U.S. due to lower oil prices, a weak economy and an oversupply situation, especially from refineries. An outcome of the lower propylene Jan Feb Mar Apr 26 May 27 Jun 28 Jul Aug Sep price may be an improvement in North America PP exports in 29. However, there is a wave of new capacity hitting the world that could counter increased exports from North America. That is CMAI s current assumption with projected lower North America PP exports in 29. Nevertheless, the U.S. will remain a relatively large net exporter because of its two key markets, Canada and Mexico. November 6, 28/ Issue No. 128 Page 22

23 Mexico Global Plastics & Polymers Market Report POLYPROPYLENE Prices PP prices in Mexico followed an evolution that was very similar to the one experienced by PE prices. The month started at prices that were in line with what was being offered by the end of September, but rapidly eroded as the month went by. The most representative price for homopolymers for the month of October was 69 cents per pound, a whole 1 cents per pound lower than the prevailing price in September. Suppliers had to endure constant negotiations with converters, who were looking to get the best possible offer in each operation. Buyer s remorse was not unheard of. The prevailing price for imported PP homopolymer resins was 69 cents per pound. Market (Supply/Demand) Demand in Mexico is subdued, as converters are only purchasing what is strictly necessary. The big issue is that converters are expecting important price reductions for November, and are trying to avoid building inventories of raw materials or finished products that would not be competitive when the new (and lower) prices are established. Credit was also not widely available earlier in the month, further compounding the demand issues. West Europe Prices - Polypropylene demand is weak and prices continue to decline, not only in Europe, but also in neighboring markets. In Turkey, Petkim reacted to increased import pressure WEP PP Prices ( / mton) oct-8 Sep-8 Change Injection Molding (Copolymer) 1,25-1,31 1,35-1, Inj. Molding (Homopolymer) 1,2-1,26 1,3-1, Slit Tape Grade ("Raffia") 1,16-1,22 1,26-1, Staple Fiber Grade 1,16-1,22 1,26-1, by announcing four consecutive decreases on its domestic PP prices during October. This put pressure on West European prices, which continue to drift downwards. In general, PP contract prices have lost 14 per metric ton since August and are now back at the level they were in May 28. On average, general purpose injection molding homopolymer grades declined 1 per metric ton in October and are currently sold in the range of per metric ton. Injection molding co-polymer grades also sank on average 1 per metric ton to per metric ton. Raffia and fiber grade prices are currently located between per metric ton. After declining sharply in September, domestic European spot prices for both homopolymer and co-polymer grades fell again, by roughly 3-5 per metric ton by the end of October. PP homopolymer spot prices declined to 15 per metric ton FD North West Europe in October, while PP copolymer spot prices dropped to 18 per metric ton FD NWE. The spot price outlook remains bearish for November. Credit terms seem to have become an increasingly important issue, with some producers pushing hard to reduce accounts receivable by even a couple of days. The slump in the automotive sector, as well as reduced demand in other sectors such as construction and the textile industry, has led to a marked slowdown in polypropylene demand. It is hard to imagine that the situation will improve in the near future. This being the case, the price of polypropylene will primarily be driven by production costs, which at the end of the day have their origin in the oil price. CMAI forecasts a Brent oil price in Q1 of approximately US$65 per barrel. All things being equal, this could result in a reduction of the propylene monomer price in Q1 29 of 2-3 per metric ton from its Q4 level of 953 per metric ton. CMAI expects this feedstock price reduction to largely be passed on to the market in the form of lower polypropylene prices before the end of per metric ton was already conceded in October and further price cuts are expected in November and December. Market (Supply/Demand)- Demand remains muted although perhaps marginally better than for polyethylene but unable to improve markedly from the previous two lackluster months. Kept artificially high November 6, 28/ Issue No. 128 Page 23

24 by a rigid quarterly price system for propylene monomer feedstock, polypropylene resin prices were not able to react quickly enough to the fundamental change in market dynamics in Europe and, indeed, globally. This is not to say that lower prices would have significantly improved demand. Price-demand elasticity is probably close to zero within any realistic price band, as both demand and prices spiral downwards. Sales by West European producers in September were down considerably, by 9 percent compared to both September 27 and 26. On a year-to-date basis, sales have been 6 percent lower Euros Per Metric Ton 1,6 1,4 1,2 1, POLYPROPYLENE West europe Polypropylene/Propylene Monthly Pricing Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 PP - C3 Differential Propylene CP PP (Inj Mldg Homo) CP Forecast than in 27 and 4 percent lower than in 26. Year-to-date domestic demand for polypropylene in Western Europe is also down approximately 5 percent compared to 27; in fact we would have to go back to 25 to find a lower level of demand for the first nine months of the year. According to CMAI calculations, producer-held inventories are currently at approximately seven weeks of sales, given the current weak demand situation. Inventories made a rather large 2 percent jump in August, but producers reacted prudently to the changing demand scenario by reducing PP plant operating rates in both September and October. Whereas operating rates were as high as 95 percent in June, they are now located in the low 8 percent range. Looking forward, it is difficult to envision an improved demand scenario for the near term. A case in point is the automobile industry, which is a large consumer of polypropylene. Auto sales in West Europe dropped 9 percent in September 29, according to the German carmakers association or VDA. The possibility of double digit declines in 29 exists in both Europe and North America, as well as a slow down to single digit growth figures in Asia. Trade - As depicted in the adjacent chart based on official trade data for the first seven months of the years 26 28, Western Europe still exports three times more polypropylene than it imports. The five most important destinations for West European PP in 28 are Turkey, Poland, Czech Republic, Hungary and China, in that order. Turkey alone has imported 232 thousand metric tons of the 659 thousand metric tons of polypropylene exported from West Europe, either directly or via traders. Exports to Turkey have reportedly declined sharply in recent months, as Turkey has been inundated with offers for low-priced polypropylene from around the world. Exports from West Europe will continue to drop in 28 and 29 as volumes into Turkey and the Far East are replaced by Saudi Arabian polypropylene. CMAI had earlier expected that polypropylene imports into West Europe would increase significantly toward the middle of 28, with the start-up of the Advanced Polypropylene Company 45 thousand metric tons per year plant in Al Jubail and the NATPET 4 thousand metric tons per year unit in Yanbu, Saudi Arabia; which were both expected to start up in Q1 of 28. This did not happen for three reasons: firstly, the start up of the NATPET unit was delayed until Q3; secondly, there was a surge in polypropylene demand in Asia during the first half of 28 caused by the run-up in crude oil prices. The third reason lies November 6, 28/ Issue No. 128 Page 24

25 in India: Reliance had expected to begin operations at its new 9 thousand metric tons per year unit in Jamnagar by the middle of 28. This unit is now not likely to be commissioned until December of the current year. Focus on What goes up must come down - The first time we looked at the adjacent chart at the end of June 28, the Brent crude oil price on its way to $15 per barrel. At that time, we asked ourselves the question as to what extent this might be expected to impact the price of polypropylene? The question is still relevant, four months later, at a time, when the crude oil price is rapidly headed in the opposed direction and rapidly approaching the $6 per barrel mark. We know that the oil price has a significant impact on polypropylene prices. But what do recent developments mean for the PP price in the near future? Based on our updated analysis, in the period covering 24 through October 28, on average every one dollar increase in the price of crude resulted in a $14 per metric ton increase in the non-discounted monthly PP contract price in West Europe. As can be seen, in May, June and July, PP prices were far away from trend and Thousand Metric Tons 14 exports imports POLYPROPYLENE West europe Polypropylene trade ytd January-July PP Homo Imports PP Copo Imports PP Homo Exports PP Copo Exports Net Trade West europe Polypropylene vs. Brent Crude Brent Crude, Dollars Per Barrel 14 Note: the correlation is based on monthly price data and exchange rates over the period Jan-4 to Oct-8 12 May to Jul PP Contract Price, Dollars Per Metric Ton had to go up. The correlation is not perfect and the largest distorting factor is the fact that in West Europe, oil product prices are quoted daily, polypropylene prices monthly, but propylene monomer prices on a quarterly basis. While it is very nice to have relatively stable propylene monomer prices, this disconnect, is probably counterproductive, as so far as necessary price adjustments in relationship to other markets get delayed. Nevertheless, in time a significant change in the crude price will invariably lead to a change in polypropylene price. Let s just assume for a moment that the trend from the last five years holds true. That would mean that at $6 per barrel oil the polypropylene price should be $135 or 155 per metric ton at the current exchange rate of 1.28 /$. Time will tell 112 $ october 28 Gradient of the line gives about $14/t increase of the PP contract price for each one dollar increase in the crude oil price 8 $ November 6, 28/ Issue No. 128 Page 25

26 Middle East Global Plastics & Polymers Market Report POLYPROPYLENE Average Weekly Polypropylene Concluded Middle east Spot Prices october 28 CFR Dubai Spot Price ($/MT) Week1 Week2 Week3 Week4 Week5 Avg. Spot PP - homo Poly im / raffia 1,535 1,535 1,51 1,485 1,4 1,421 PP - Film 1,555 1,555 1,53 1,55 1,6 1,441 PP - Co-Polymer im 1,61 1,61 1,58 1,58 1,9 1,494 CFR Mumbai Spot Price ($/MT) Week1 Week2 Week3 Week4 Week5 Avg. Spot PP homo Poly im / raffia 1,34 1,3 1, ,162 PP Film 1,36 1,31 1, ,182 PP Co-Polymer im 1,38 1,32 1, ,188 Note: CFR Dubai & Mumbai spot prices are posted as of every Wednesday evening. Prices - Polypropylene prices have been more volatile than polyethylene since pricing began to plummet in mid-july. This trend continued in October as polypropylene prices fell to $1 per metric ton and lower in the Middle East and India. During the earlier months of the year, propylene prices had held relatively firm and didn t decline much even while polypropylene prices were dropping sharply. However, during the last two weeks of October, the propylene price has seen a free fall due to very poor demand for all its derivatives. Propylene prices went below $5 per metric ton by month end to be almost at par with ethylene prices. The fall in the propylene prices has resulted in lower production cash costs for polypropylene producers and further pressured PP prices. In the Middle East, a majority of the producers in Saudi Arabia and Kuwait kept their monthly pricing policy and maintained PP prices at $155 per metric ton during first three weeks of October. Due to the production problems faced by these producers during earlier months, they were not under any significant inventory pressure and hence they continued to maintain their price level even while smaller regional PP producers and Asian producers were offering much lower prices. However, by the month s end the situation had changed dramatically. All polypropylene production lines of Gulf based producers are operating at optimum levels; exports orders are extremely slow and inventory pressure is rising. These facts have forced Gulf based producers to sharply reduce their prices for November deliveries to $1,7 - $1,9 per metric ton for homopolymer injection molding and raffia grades. Asian producers were even more aggressive, offering the reference grades at $1, per metric ton. In India, domestic prices were revised downwards by almost 33 percent during October as producers attempted to stimulate the sagging demand, but this action failed to achieve the desired result. Exports by Indian producers were also weak during the month, resulting in higher inventory levels. Suppliers from the Middle East and India have been aggressively marketing their products in India over the last two months, which is putting additional downward pressure on prices in the country. Polypropylene is a versatile plastic used in a wide range of applications. This versatility has helped in its rapid consumption growth. However, due to the global slowdown in economic development, polypropylene consumption has been severely impacted. Emerging markets in Asia and the Middle East which were exporting large volumes of BOPP film, fiber and filaments, toys, automobile parts etc. have been the most affected. This reduced the consumption of polypropylene over the last few months will continue to affect the market over the next several months. Slower growth in polypropylene consumption and huge capacity additions in the region will put immense pressure on producer margins. Polypropylene prices will remain under pressure for a long period due to over supplies in the market. November 6, 28/ Issue No. 128 Page 26

27 POLYPROPYLENE Polypropylene prices in the Middle PP & Feedstock Price trend East have been under greater pressure than polyethylene prices during the last 3 months. Moreover, U.S. Dollars Per Metric Ton 2,5 the Middle East based producers do not have the huge production 2, cash cost advantage in the polypropylene business that they enjoy 1,5 in polyethylene. This makes it difficult for stand-alone polypropylene 1, producers in the region, using PDH technology to produce propylene, to 5 remain profitable. During the last three months the feedstock cost of polypropylene producers has been Jan-7 Mar-7 May-7 Jul-7 Sep-7 Nov-7 Jan-8 Mar-8 May-8 Jul-8 Sep-8 declining rapidly. However, once Naphtha, C&F Japan Propylene, FOB MDE PP, CFR MDE crude and naphtha prices stabilize, the polypropylene plants with alternate technologies will find it difficult to remain profitable as it will take much longer for polypropylene prices to stabilize and increase. Market (Supply/Demand) - Polypropylene supplies from all producers in the Middle East was at optimum levels during October after facing operational problems during Q2. This has considerably increased the availability of PP in the region. End product demand in the region is still buoyant and largely unaffected. However, large converters exporting BOPP film, fiber and filament, woven bags etc. have been affected by the global economic slowdown. In India, subdued demand in the domestic and export markets has considerably increased inventory levels with the domestic producers. This has forced them to curtail production during October. The trend of lower operating rates is likely to continue over the next few weeks until demand and export margins recover and stock levels with producers decline. Trade - The Middle East has a limited capacity of polypropylene production in comparison to the huge polyethylene capacity running in the region. Over the last few years, demand for polypropylene in the region has grown rapidly. Due to these factors, the Middle East has not been a major exporter of polypropylene to China. India has been regularly exporting polypropylene to China over the last few years. The overall polypropylene market share in China associated Thousand Metric Tons PP exports from Mde & isc to China Jan to September 27 through 28 Exports to China 27 Jan - Sept 7-8 Change 28 Jan - Sept MDE & ISC = 213 KT 7.8 % 23 KT WORLD = 2,328 KT 1.2 % 2,91 KT Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 India Iran Kuwait Oman Saudi Arabia November 6, 28/ Issue No. 128 Page 27

28 POLYPROPYLENE with producers in the Middle East and India was just 9. percent in 27. During the first nine months of 28, polypropylene exports from the Middle East and India increased by almost 8. percent, even while the total imports of polypropylene by China fell by more than 1. percent. New polypropylene producers in Saudi Arabia and Oman have been very aggressive in the China market during Q3 while prices have been falling rapidly. Iran also sold aggressively to China during Q3. This has resulted in growth in PP exports from the region even while producers in other regions were finding it difficult to book orders in China due to drastic price reductions. The relevance of Middle East producers in China is likely to increase in 29 as huge new capacity additions in the region will increase the overall exports of polypropylene, and China will be the largest market for all these producers. Asia Average Weekly Polypropylene Concluded Spot Prices CFr China Month: September Shipment Week 1 Week 2 Week 3 Week 4 Avg. Spot Polypropylene - hp injection 1,59 1,495 1,425 1,335 1,461 Month: october Shipment Week 1 Week 2 Week 3 Week 4 Week 5 Avg. Spot Polypropylene - hp injection 1,335 1,175 1, ,13 Note: CFR China spot prices are posted as of each Thursday evening in Asia. ($/MT) Prices - The reduction in PP domestic prices in China is much larger than for PE; prices in the East China region (using homopolymer, yarn/injection as reference) declined by almost 4 ASP PP Prices ($ / mton) oct-8 Sep-8 Change Injection Molding (Copolymer) 74-1,41 1,34-1, Inj. Molding (Homopolymer) 7-1,37 1,3-1, Slit Tape Grade ("Raffia") 7-1,37 1,3-1, Film Grade 72-1,39 1,32-1, percent from RMB11,9-RMB12, per metric ton at the start of the month to RMB6,8-RMB7,1 per metric ton at the end of the month. The sharp correction obviously had a strong contagious effect on import prices in the region; import prices sharply declined from $1,35-$1,37 per metric ton CFR at the start of the month to $7-$75 per metric ton CFR at the end of the month. Likewise, Southeast Asia market prices also fell heavily under the influence of the weak markets in the Northern region; import prices at the end of the month trended towards $7-$75 per metric ton CFR Ho Chi Minh City (using Vietnam as the marker). The sharp decline in resin prices in such a short period of time obviously brought about duress for the regional petrochemical producers who are exposed to high feedstock costs. For example, the contract prices for propylene were understood to be in the range of around $1, per metric ton but spot PP prices were around $3 per metric ton lower. This situation is not economically tenable for long and the regional producers should be attempting to fix the anomaly soon. The major producers in China have already announced planned production cuts of around 15 percent for the following month. Similarly, regional producers have started to (or are planning to) cut production by putting some units on idle mode until demand recovers and economics makes sense. Whether prices will stabilize when demand recovers or demand will recover when prices stabilize will be debatable. Setting aside the question of which comes first chicken or egg, it is more than likely that the current drop in prices has been overdone and a technical rebound should be expected. November 6, 28/ Issue No. 128 Page 28

29 POLYPROPYLENE Market (Supply/Demand) - China s PP resin production reached 5.4 million metric tons for the period from January to September 28 and this represents an increase of 3.7 percent compared to the same period in 27. The increase in production came from the new PP plants that have started up in China during the year, but the increase will be offset by production cuts especially in the coming months due to the severe demand slowdown and negative margins. Imports China PP demand into Woven Production Thousand Metric Tons Growth, % have declined by over 11. percent Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 comparing the same period in 28 with 27, dropping to 2.4 million Production Growth compared to 12 months ago metric tons as compared with 2.7 million metric tons in 27. Combining domestic production plus imports, total supply fell by nearly 1.5 percent from 7.9 million metric tons to 7.8 million metric tons. Again, assuming supply equals demand, the decline in resin demand could be explained by a decline in exports of finished goods increased use of recycled resins and the fact that high resin prices have decreased demand growth. Woven products fabrication in September 28 was 475 thousand metric tons due to a slight demand recovery, up by 35. percent compared to the same period a year ago. The total production from January to September was 3.51 million metric tons, an increase of almost 23. percent on the same period last year. The export of woven and container bags was about 42 million bags and 9 million bags respectively in September, a large increase compared to the levels seen in the month of August 28. The total export from January to September 28 was 27 percent higher when comparing the same period in 27. The growth in exports was due to the benefit of the 11 percent export tax rebate, while the export tax rebates for other plastic products were still set at 5 percent. The export rebate for woven products will be further increased to 14 percent starting from November 1, 28. Production for daily-use plastic products in September reached 378 thousand metric tons, a rollover from the month of August. The January to September total was 2.9 million metric tons, an increase of around 1. percent year-on-year. The demand of daily-use plastic products was relatively steady as compared to other plastic products. The margins of downstream factories have expanded in line with the stable domestic demand and collapse of HDPE injection grade and PP resin prices. CMAI forecasts the demand of daily-use plastic products will be better than other plastic products in the coming months of November and December. Trade - Exports of plastics products will selectively improve over the next few months as the plastic processing industry undergoes a tumultuous period. It is expected that there will be measures put in place to support the industry by spurring domestic demand as well as helping processors to export. One of the shining stars for plastics products exports continue to be woven products, which have had a significant increase for almost every month of this year compared to the same months in previous years. As mentioned in the above section, the export tax rebate for woven products will be further increased to 14 percent by November and November 6, 28/ Issue No. 128 Page 29

30 POLYPROPYLENE this should stimulate the industry to export more woven products, be it China Plastics demand into daily-use Production in the form of sacks, jumbo bags or Thousand Metric Tons Growth, % other forms. China has ample capacity to produce woven products; therefore, it will be attractive to use China as the base to manufacture woven cloth (of large scale quantity at low costs) before exporting to other parts of Asia to further process it into finished forms. Another product with potential growth for exports should be BOPP film which can be produced in large volumes and shipped in bulk of rolls to the final destinations (for example, other Sep-6 Dec-6 Mar-7 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 parts of Asia) where BOPP film can Production Growth compared to 12 months ago be used in packaging production. The recent collapse of PP resin prices in China provided more reasons to source plastics products from China and also other parts of Asia; especially if resin prices in other parts of the world do not change by the same magnitude as China s. Global Soda Ash Consulting Service This new monthly service from CMAI s Chlor-alkali group offers: Sign up now to the latest updates! - Forecast and historic prices for soda ash on a regional and global scale - Planned capacity listings: soda ash, flat & container glass - Supply/demand: China, West Europe, USA - Regional and global market analysis - Soda ash margins & cash costs - Glass Statistics - Trade dynamics CHEMICAL MARKET ASSOCIATES, INC. Contact CMAI for more information at cmai@cmaiglobal.com Houston - Dubai - Düsseldorf - London - New York - Shanghai - Singapore November 6, 28/ Issue No. 128 Page 3

31 World Prices -The PVC resin price in all regions of the world is now on a downward path. This is mainly due to the recent drop in the energy price, resulting in a significant drop in the ethylene price. Spot PVC prices in Asia were over $1 per metric ton several weeks ago, but have now dropped to $6 per metric ton or below. The debate in all regions is exactly how much PVC prices will drop during the fourth quarter. PVC demand in all regions is soft, with speculation that low demand will continue for several months. Polyvinyl Chloride Dollars Per Metric Ton 1,4 1,3 1,2 1,1 1, POLYVINYL CHLORIDE regional PvC netback Comparison After discounts and Freight Forecast 3 Q3 4 Q3 5 Q3 6 Q3 7 Q3 8 Q3 9 Q3 NORTH AMERICA U.S. Contract-Market WEP Contract-Market NEA Spot Prices - PVC prices for August settled flat with July, and September prices seem like they will end up settling flat with August. Most buyers and sellers have moved their discussion to how much of a drop in PVC price will occur during October. The current discussions are about a drop of around 5 cents per pound in October. The hurricanes during September and resulting PVC plant outages have kept PVC prices from falling during September. Most PVC buyers are frustrated because they believed that PVC prices should have dropped during August and September and not have waited until October to drop. Swings in costs and resulting swings in PVC pricing are making it hard to manage forward trades in the business. PVC end use demand is extremely low with everyone expecting operating rates during November and December to be low. Settled/ Contract list date Forecast Price Change Price U.S. Polyvinyl Chloride Price Settlements (Cents/lb) Pricing dec-7 Settled Flat Jan-8 Settled resin sellers showed discipline in attaining a 2. cent increase during a low PvC demand month. Feb-8 Settled Flat 54. Mar-8 Settled Apr-8 Settled ethylene prices and energy prices on the rise. May-8 Settled ethylene prices and energy prices on the rise. Jun-8 Settled Flat 6. ethylene prices are rapidly moving upward Jul-8 Settled Sellers announced 4 cents for July + 4 for August, based on increases in raw material cost Aug-8 Settled Flat 64. Sellers held their ground on price, due to outages in September and hurricane expenses Sep-8 Forecast Flat hurricane outages may mean higher than originally forecast prices. oct-8 Forecast -5. drop in energy and ethylene nov-8 Forecast -5. ethylene prices continue to drop combined with low PvC demand dec-8 Forecast -5. Poor demand combined with contract renewal season A significant drop in PvC price is forecast between october 1st and the end of February. the actual amount of price drop and timing of price drop will depend on raw material costs along with market conditions. Market Comments November 6, 28/ Issue No. 128 Page 31

32 Ethylene prices in the U.S. have dropped significantly from August 1st through October, with more price drops expected in November and December. The cash cost to produce PVC is significantly lower today compared to the first part of August. Ethylene margins are forecast to continue to be under downward pressure as more ethylene capacity is brought on line in the Middle East. Currently, PVC producers that have to buy ethylene and chlorine to produce PVC have returned some margin back into their business as ethylene prices drop and they are able to hold onto the existing PVC price. CMAI expects these non integrated margins to be reduced during the fourth quarter as PVC prices drop. The nonintegrated PVC margin is forecast to stay at low to negative levels during 28 and 29 unless more capacity is idled. However, the integrated chlor-alkali PVC producers are making excellent margins during the fourth quarter of 28 and are expected to continue to make good overall margins in 29 mainly due to the continuing high prices of caustic soda Cents Per Pound 8 Integrated - Asset Sharing Method POLYVINYL CHLORIDE U.S. Quarterly PvC economics For non-integrated PvC Production Cents Per Pound 8 Non-Integrated (buys Chlorine & Ethylene) 7 U.S. PvC Quarterly economics Dollars Per Metric Ton 1764 Forecast Q3 4 Q3 5 Q3 6 Q3 7 Q3 8 Q3 9 Q3 PVC Cash Cost PVC Contract - Del'd (before disc.) PVC Margin Dollars Per Metric Ton 1764 Forecast Market (Supply/Demand) - Currently, domestic PVC demand is extremely low and is forecast to remain low for the rest of this year and into early 29. Export PVC demand has remained strong so far this year. However, export PVC prices have dropped rapidly which is making it harder to justify PVC exports compared to just a few months ago. Trade - U.S. PVC exports year to date through August of 28 have totaled 989, metric tons, which is a 61 percent increase over the same time period in 27. The U.S. has always been a large exporter of PVC resins to other parts of the world, but energy and transportation costs have greatly increased since the early part of this decade, which makes it harder for the U.S. to export PVC. However, a large demand for PVC in -1 Million Metric Tons Operating Rate, % Q3 4 Q3 5 Q3 6 Q3 7 Q3 8 Q3 9 Q3 PVC Total Cash Cost PVC Contract - Del'd (before disc.) PVC Margin nam PvC Quarterly Supply/demand 23 Q2 Q3 Q4 24 Q2 Q3 Q4 25 Q2 Q3 Q4 26 Q2 Q3 Q4 27 Q2 Q3 Q4 28 Q2 Q3 Q4 29 Q2 Q3 Q4 Total Demand Net Exports Op. Rate November 6, 28/ Issue No. 128 Page 32

33 the export market has been prevalent through August of this year. However, overall world demand for PVC is now dropping and export PVC resin prices have dropped significantly over the last several weeks. CMAI does not have the export data as yet, but we believe the amount of exports in September will be greatly reduced due to the hurricanes that hit the US Gulf Coast. Also, the very low export prices expected in the fourth quarter will make it harder to justify the amount of exports in the same quarter as seen for most of this year. WEST EUROPE 24% 6% 27 ytd August = 615 8% 7% 11% 2% POLYVINYL CHLORIDE Prices - If there was any confusion as to PVC price developments in WeP PvC Monthly Price economics Dollars Per Metric Ton September, the uncertainty was 1,8 swept away in October as PVC Integrated - Asset Shared Method Forecast slowly but surely became infected with the disease already inflicting other major thermoplastics. After 1,6 1,4 1,2 falling on average 1 per metric ton in September, the rate of decrease accelerated in October and prices fell by 6 per metric ton. CMAI now quotes the suspension PVC pipe grade contract price at 96 per metric ton. Spot prices are approximately 2 per metric ton lower than contract, with attractive 1, Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 offers for Asian material in PVC Total Cash Cost PVC Contract Delivered PVC Margin abundance. Prices will invariably drop further in the remaining two months of 29 as the general malaise afflicting the world economy broadens and deepens. All expectations are for a much lower ethylene monomer price for Q1 29, and for significantly reduced PVC resin prices. Buyers will not be motivated to purchase any more than absolute minimum volumes needed to keep operations running and to fulfill their contractual obligations with suppliers. PVC buyers will juggle between the desire to take advantage of yearly volume rebates, and at the same time reduce working capital at year s end. Cash margins for a fully integrated West European PVC producer saw an increase in October to about 93 per metric ton, up from about 66 per metric ton in September. Margins are being buoyed by the strong caustic soda prices which has improved the overall economics for a fully integrated chlor-alkali/vinyls producer. Margins are now higher than in 27; in October last year margins averaged 8 per metric ton. 42% Africa & Middle East * Asia Pacific ** Canada China Other South America Turkey & Egypt * Excludes Egypt & Turkey ** Excludes China U.S. PvC exports (thousand Metric tons) 34% 28 ytd August = % 6% 1% 5% 2% 3% November 6, 28/ Issue No. 128 Page 33