2017 Review & 2018 Outlook - Plastribution · consequently styrene monomer prices being a driving force. However, as is the case at the beginning of 2018 supply demand can affect

2017 Review & 2018 Outlook

0845 34 54 560www.plastribution.co.uk

2www.plastribution.co.uk Tel: +44 (0) 1530 560560 Email: [email protected] and feedstock price data provided by PIE. www.pieweb.com

Welcome to price know-how

A monthly publication looking at key factors that affects UK polymer markets.

Price Know-how Glossary

The concept of a user friendly market report came from feedback about an article published in PRW (Plastics & Rubber Weekly) about the 2011 market outlook to which Plastribution made a significant contribution.

Whilst some price surveys currently exist they are often difficult to interpret, use foreign currencies, and differing units of measure. Price know-how aims to be relevant by providing an overview, material group specific reports and more general economic information including exchange rates and GDP growth. To keep things relevant the report is in £ Sterling with tonnes as the common unit of measure.

The objective of the report is to form the basis of discussion about issues such as pricing and availability and so be a basis on which to consider purchasing strategies.

It is also believed that the report will support customers in explaining polymer price trends to their own customers, employees and shareholders.

As always we would welcome your feedback, and as ever your sales team is available to discuss your specific requirements.

The Plastribution Team

Monomers

C2 – Ethylene

C3 – Propylene

SM – Styrene Monomer

Naphtha

Derivative from the crude oil refining process, which is then

typically passed through a (Steam) Cracker to produce various

feedstocks including C2 and C3.

Force Majeure (non-legal definition)

Since accepting an order circumstances outside of the

supplier’s control, and which could not have been foreseen,

now prevent the supplier from fulfilling the contract either in part

or in full. By declaring Force Majeure the contract is to supply is

cancelled.


Coal Methanol Formaldehyde Acetal

Polyethylene

Polypropylene

Polystyrene

Phenol

Acetone

Styrene

Cumene

Ethylbenzene

ABS

PMMA

SBR

LDPE, HDPE, LLDPE

MTO

Olefins

Dehydrogenation Methane

Crude Oil Naptha Aromatics Toluene

Benzene CylclohexeneAdipic Acid Nylon 66

Nylon 6Caprolactam

Xylenes

Ethane

Propane

Butane

Condensate

Ethylene (C2)

Propylene (C3)

Butadiene (C4)

Butene

Natural Gas

Steam Cracking

From Hydrocarbons to Polymer

A simple diagram explaining the production routes from the major hydrocarbon sources through feedstock to the most common polymer groups.


•Political •War•Natural Disaster

•Changes in consumer markets

•Geographical shifts

in supply/demand

External Factors•Currency•Short term demand•Short term reductions in capacity•Arbitrage of Polymer•China & SE Asia supply/demand•Trader Activity

Market•Monomer Pricing Styrene Propylene Ethylene Benzene C4

Polymer Producers

Main drivers of polymer prices

•Polymerisation Margins•Inventory•Planned & un-planned outages

Feedstock

•Oil

•Gas

•Shale

•Naptha


From a raw materials supply perspective 2017 was relatively quiet by historical standards and whilst for many the difficult supply situation that started in Q1 2015 still remains a bitter memory the reality was that in the main availability improved further in 2017. The prices of the more volatile materials remained relatively high which in part is the reality of currency devaluation in a market where prices are Euro and USD denominated has resulted in relative price inflation compared with those trading in Euros as a principle currency. BREXIT remained a very significant topic, and the result of the June General Election caused further concern as the Conservative Government failed to achieve the mandate it sought. Furthermore, as the potential ramifications of BREXIT at an industry level became increasingly clear the scale of the challenge of exiting the EU has started to be realized.

The table below confirms that price volatility in the polyolefins sector was relatively low, with prices at a marginally lower level than the prior year. Given that the BREXIT devaluation of the GBP was only a factor for the second six months versus the whole of 2017 it is clear that in the defacto Euro denomination prices have in fact fallen somewhat further, but in the UK this effect is offset by the weaker GBP versus Euro exchange rate.

2017 Review

Min Max Average Range GBP Volatility

2011 £1,027.83 £1,165.32 £1,165.32 £137.49 12%

2012 £1,266.53 £1,540.67 £1,396.54 £274.14 23%

2013 £1,259.20 £1,611.59 £1,411.46 £352.39 29%

2014 £1,392.99 £1,540.56 £1,483.95 £147.56 12%

2015 £1,442.26 £1,571.24 £1,481.49 £128.98 10%

2016 £1,401.78 £1,569.30 £1,474.99 £167.52 13%

2017 £1,393.60 £1,521.24 £1,426.86 £127.64 10%

Polyolefins Basket


One of the most significant volatility factors was the hurricane season affecting production in the US Gulf Coast area. Nowhere was the impact of storm Harvey and its siblings more evident than the spot and contract prices of styrene monomer which rapidly increased on the fear of supply shortages, only to settle back down quite quickly after normal production was resumed.

Possibly the most interesting change in 2017 has been in the arena of engineering polymers, where increasing input costs combined with a significant change in the supply/demand balance has resulted in significant price inflation. PMMA was one of the first materials to be affected by this phenomenon, but all other standard engineering polymers including, PA6, PA66, PBT, ABS, POM and PC have followed suit. In the case of PC prices are heading back towards historical highs and this situation is likely to replicated throughout this material group.

The price of crude oil increased steadily in the later part of 2017, having dipped mid-year on the basis of high production and excessive inventories. The weakness of the USD is evident as an inflation factor throughout the second half of the year.

USD per tonne

GBP per tonne

500.00

450.00

400.00

350.00

300.00

250.00

200.00

150.00

Brent Crude Oil Price per tonne

2017 Review


The exchange rate dynamics changed significantly in 2017 and whilst the impact of BREXIT on the GBP/Euro exchange rate continued to be the dominant force the USD came under pressures as concerns grew about America’s prospects under the Donald Trump Republican presidency.

2017 Review

£1,600.00

£1,400.00

£1,200.00

£1,000.00

£800.00

£600.00

£400.00

£200.00

Naphtha Spot

Ethylene (C2) Spot

Ethylene (C2) Contract

Propylene (C3) Spot

Propylene (C3) Contract

Benzene Spot

Benzene Contract

Styrene (SM) Spot

Styrene (SM) ContractJa

n -1

7

Feb

- 17

Mar

- 17

Apr -

17

May

- 17

Jun

- 17

Jul -

17

Aug

- 17

Sep

- 17

Oct

- 17

Nov

- 17

Dec

- 17

£ pe

r hon

ne

Feedstock Costs GBP


Despite the continuing BREXIT issue the UK economy continued to perform well in 2017, with further increases in employment rates and positive economic growth. Inflation, fuelled by the BREXIT devaluation of the GBP, became a concern and eventually the Bank of England bowed to increasing pressure and raised its interest rates by 0.25% to 0.75% with a strong caveat that it would a cautious approach to further increases as it was unclear how sensitive the economy would be to interest rates hikes after almost a decade of record low rates. Within the manufacturing sector, plastics were again noted for their strong performance; supported by a fairly robust automotive sector and stability in the housing and construction sectors.

There was strong anecdotal evidence that the devaluation of GBP following BREXIT has continued to reduce import penetration and this is increasing the amount of domestic manufacturing; given the relatively low CAPEX barrier to entry the plastics sector is in a good position to continue to benefit from this effect. Although, as capacity becomes fully utilised the twin effects of economic uncertainty and the increased cost of imported plant and machinery growth may be restricted by the willingness to make long-term investments.

From the perspective of polymer producers 2017 looks a big success with strong margins and good levels of demand. For those producers integrated upstream into oil refining and production their plastics downstream activity has been a strong source of revenue and profit.

2017 Review

Euro

USD

1.35

1.30

1.25

1.20

1.15

1.10

1.05

Jan

2017

Feb

2017

Mar

201

7

Apr 2

017

May

201

7

June

201

7

July

201

7

Aug

2017

Sep

2017

Oct

201

7

Nov

201

7

Dec

2017

Exchange Rates


It looks like the year ahead is going to be interesting and already it is possible to see some important trends emerging. There will of course be the usual smattering of unknowns/not anticipated effects and for some the possibility of a global economic slowdown looms large on the horizon.

In the case of engineering polymers the current trend of price inflation looks set to continue. Whilst it has been some time since similar circumstances have prevailed, the expectation would be a gradual rise towards a peak, which could occur in H2 2018, followed an extended period of stability after which here is a gradual decay in price as competition for volume/market share increases. It is not expected that engineering price inflation will have a consequential effect for the ultra-high performance polymers as these materials are typically independent of the supply/demand drivers and prices are more likely to broadly follow more general inflationary pressures.

The styrenics polymers group including polystyrene and ABS is likely to remain volatile with benzene and consequently styrene monomer prices being a driving force. However, as is the case at the beginning of 2018 supply demand can affect any part of the pricing model and this is clearly driving ABS and speciality styrene polymer prices upwards at this time.

Perhaps one of the most significant factors that will impact the polyolefins sector will be the increase in shale gas derived polymers from the USA. Although the economics of these plants don’t look quite as attractive as when oil was $140+ per barrel the profit margins still look good and the fact is the capacity is coming on stream is causing the supply/demand balance to dominate price action with a near certain glut of material appearing on the market during the course of 2018. At this stage, the expectation is that the initial impact of these new capacities will be quite modest in Europe as the new plants are owned by producers who have existing sales infrastructure in the region and are therefore are unlikely to be disruptive. However, it should be noted that the current expansion is in PE and not PP and the movement in the January 2018 monomer price may be symptomatic of a paradigm shift in the relative economics of these two important materials; untypically C3 (Propylene) prices increased whereas C2 (Ethylene) prices rolled over. In the market, there were strong rumours that PE cargoes were arriving imminently and this appeared to undermine the confidence of producers to push through either monomer or polymer price increases. The divergence of PP and PP pricing is likely to be a continuing trend as European polyolefin producers seek greater contribution from the more exclusive PP value chain.

2018 Outlook

Monomer Prices Movement (£ GBP per tonne) January-17

Feedstock Change (Contract)

C2 (Ethylene) £0.00

C3 (Propylene) £17.66

Styrene £0.00

Benzene -£48.56

Brent Crude £17.70


2018 Outlook

£1400.00

£1200.00

£1000.00

£800.00

£600.00

£400.00

£200.00

£0.00

-£200.00

£1400.00

£1200.00

£1000.00

£800.00

£600.00

£400.00

£200.00

£0.00

PP Basket

PP Basket Over Crude

PP Basket Over Naphtha

PP Basket Over C3 Spot

PP Basket Over C3 Contract

May

- 15

Aug

- 15

Nov

- 15

Feb

- 15

May

- 16

Aug

- 16

Nov

- 16

Feb

- 17

May

- 17

Aug

- 17

Nov

- 17

Apr -

15

Jul -

15

Oct

- 15

Jan

- 16

Apr -

16

Jul -

16

Oct

- 16

Jan

- 17

Apr -

17

Jul -

17

Oct

- 17

PP Basket





£1800.00£1600.00£1400.00£1200.00£1000.00

£800.00£600.00£400.00

£2900.00

£2700.00

£2500.00

£2300.00

£2100.00

£1900.00

£1700.00

£1500.00

Styrenics Basket Over Crude

Styrenics Basket over Benzene Spot

Styrenics Basket Over Benzene Contract

Styrenics Basket Over Spot Styrene

Styrenics Basket Over Contract Styrene

Engineering Polymers Over Crude

Engineering Polymers Over Spot

Benzene Engineering Polymers Over Contract

Benzene Engineering Polymers Over Naphtha

May

- 14

Nov

- 14

May

- 15

Nov

- 15

May

- 16

Nov

- 16

May

- 17

Nov

- 17

Feb

- 14

Aug

- 14

Feb

- 15

Aug

- 15

Feb

- 16

Aug

- 16

Feb

- 17

Aug

- 17

£1400.00

£1200.00

£1000.00

£800.00

£600.00

£400.00

£200.00

£0.00

-£200.00

£1400.00

£1200.00

£1000.00

£800.00

£600.00

£400.00

£200.00

£0.00

PP Basket





May

- 15

Aug

- 15

Nov

- 15

Feb

- 15

May

- 16

Aug

- 16

Nov

- 16

Feb

- 17

May

- 17

Aug

- 17

Nov

- 17

Apr -

15

Jul -

15

Oct

- 15

Jan

- 16

Apr -

16

Jul -

16

Oct

- 16

Jan

- 17

Apr -

17

Jul -

17

Oct

- 17

PP Basket





£1800.00£1600.00£1400.00£1200.00£1000.00

£800.00£600.00£400.00

£2900.00

£2700.00

£2500.00

£2300.00

£2100.00

£1900.00

£1700.00

£1500.00

Styrenics Basket Over Crude

Styrenics Basket over Benzene Spot

Styrenics Basket Over Benzene Contract

Styrenics Basket Over Spot Styrene

Styrenics Basket Over Contract Styrene

Engineering Polymers Over Crude

Engineering Polymers Over Spot

Benzene Engineering Polymers Over Contract

Benzene Engineering Polymers Over Naphtha

May

- 14

Nov

- 14

May

- 15

Nov

- 15

May

- 16

Nov

- 16

May

- 17

Nov

- 17

Feb

- 14

Aug

- 14

Feb

- 15

Aug

- 15

Feb

- 16

Aug

- 16

Feb

- 17

Aug

- 17

PE Basket Spreads Styrenics Spreads

PP Basket Spreads Engineering Polymers Basket Spreads


2018 Outlook

£2600.00

£2100.00

£1600.00

£1100.00

£600.00

£100.00

Crude Oil

Naphtha

Benzene Spot

Benzene Contract

C2 Spot

C2 Contract

C3 Spot

C3 Contract

Styrene Spot

Styrene Contract

Polyolefins Basket

Styrene Basket

Price MonitorThe graph to the right clearly depicts the strong historic correlation between oil, feedstock and standard polymers pricing. The 2015 situation now looks to be exceptional with a ‘normal’ relationship restored since about October 2016.

In addition to the expectations outlined above, there will of course be the ‘unexpected’ events to contend with. However, we hope to repeat the fairly reliable forecasts that provided in prior years and so enable you and your business to be better equipped to deal with the challenges of sourcing your polymer raw material requirements in the year ahead. Please remember that through a subscription to the ‘Hub’ area of the Plastribution website you can opt to receive monthly editions of ‘Price Know-how’ free of charge plus the team at Plastribution is always on hand to discuss your specific requirements.

This report is produced based upon the following fundamentals: -

• EURO based pricing for feedstock and polymer pricing

• Conversion of Euro and USD based prices at prevailing exchange rates

• Product baskets weighted according to UK consumption

AcknowledgementsWe would like to thank the following organisations for their support in producing this report: -

PIE (Plastics Information Europe) www.pieweb.com

HM Treasury www.hm-treasury.gov.uk

DisclaimersThe information provided in this report are based upon data available from both external an internal sources, and whilst care is exercised in producing this report we give no guarantee of accuracy.

Furthermore we accept no liability for purchasing decisions based upon the information provided as the petrochemical market is complex and volatile.

© Plastribution Limited. All rights reserved. 2014

Plastribution LimitedClinitron House, Excelsior Road, Ashby Business Park, Ashby-de-la-Zouch, LeicestershireLE65 1JG

Tel: +44 (0) 1530 560560Fax: +44 (0) 1530 560303

Email: [email protected]

Methodology

2017 Review & 2018 Outlook - Plastribution · consequently styrene monomer prices being a driving force. However, as is the case at the beginning of 2018 supply demand can affect

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