Polymer price struggle looms in October

25 September 1995 00:00  [Source: ICB]

SO FAR September has provided no relief for polymer producers. The increased demand experienced late August which had given rise to optimism now looks like a last top-up before the real price struggle between convertors and producers in October. By then lower Q4 monomer contract prices will provide solid ammunition for the convertors in their efforts to lower prices before the year end.

However, convertors will also be weighing up their position vis-a-vis their own customers. Too low a Q4 polymer price could see them strapped into their own low-priced contracts for 1996, when renewed growth in Asia could once again push world polymer prices higher.

PP prices have fallen to DM1.30-1.40/kg for raffia grade, DM1.40/kg for injection grade and DM1.45-1.60/kg for copolymer and are still slipping. Some reports put the price even lower at DM1.20/kg for raffia, and market players agree that the price could drop further. Though some producers have cut output to 80%, observers comment that the cuts were too little and too late. Consumers are buying no more product than they need in the immediate term, and will wait an extra week to buy if they possibly can. Producers' inventories are high at 10-12 weeks.

Some price variation is seen within Europe, with numbers in Germany, Belgium and France some 10pfg higher than southern Europe, Scandinavia and the UK, where prices are around £650/tonne for homopolymer and £700/tonne for copolymer. However producers are expecting the price falls to level out, and say that exports to Hong Kong and Singapore, which can indicate onward movement to China, are gradually reappearing. China normally takes 800 000 tonne/year of material, though there are no estimates as yet for this year. Market players say its importance is usually underestimated. Exports to other destinations, including Pakistan and India, are high.

HdPE prices are under a lot of pressure. The major problem is European oversupply. The extent of the downturn in domestic demand had been underestimated. Import pressures exist but are not the main cause of weakening price levels, although US competition in Asian markets is hitting the limited European export business.

Injection moulding grades have been particularly badly hit by overproduction and although producers deny that the inventory build is comparable to the 60-day polypropylene stocks, they admit that they are dangerously high and belatedly production is now being turned down, although one major claimed that there was still room for further reductions. Enichem is considering a maintenance outage at Brindisi late October/November. Consumer stocks are thought to be low but convertors continue to purchase only for immediate needs.

The situation is not helped by strong competition from polypropylene where prices have also been very weak over the past months. Injection grade hdPE prices are talked as low as DM1.30/kg. Film and blow moulding grade prices have also fallen sharply.

LdPE producers are showing a level of confidence in their market unmatched in other bulk polymer areas. They have experienced severe price erosion since May this year, with prices close to DM1.80/kg down to DM1.40/kg with lower prices available for traded material. But producers believe prices are now bouncing along the bottom. Some even tried to raise prices in September after better than expected European demand in August, but with little success. August purchases look as if they had topped up convertors' inventories and September domestic demand has been muted.

There is talk of further price hike attempts in October but a possible DM80-100/tonne FD drop in the Q4 ethylene contract could prove a difficult backdrop. However, producers argue they lost significant margin in Q3 and are looking for compensation in Q4.

Cracker cutbacks and lower ldPE operating rates have brought supply back into line with demand over the past weeks. LdPE is also the only product that has been able to rely on continuing Chinese demand over the summer months, albeit the netbacks from these sales, talked at $850/tonne CFR Shanghai, are very low. European ldPE exports into Asia in August are estimated by one player to have reached 100 000 tonne, relieving the oversupply pressure in the European marketplace.

Italian and Spanish producers complain of import pressure in their home markets, reflecting their continuing price strength after currency revaluations. Exotic material, often substandard, is priced DM1.30-1.35/kg.

Plastics price report
	Market price, DM/kg
High density polyethylene (hdPE)	August	September
Injection moulding	1.50-1.60	1.35-1.40
Film (extrusion) grade	1.55-1.65	1.45-1.55
Blow moulding	1.50-1.60	1.45-1.50
Linear low density polyethylene (lldPE)
Film-grade (butene-based)	1.50-1.55	1.38-1.43
Low density polyethylene (ldPE)
Film grade	1.50-1.55	1.40-1.45
Polypropylene (PP)
Raffia grade	1.45-1.50	1.30-1.35
Injection moulding	1.55-1.60	1.40-1.45
Copolymer	1.65-1.70	1.45-1.60
Polystyrene (PS)
General purpose	2.05-2.20	1.90-2.05
High impact	2.20-2.30	2.05-2.20
Polyvinyl chloride (PVC)
Suspension	1.60-1.65	1.45-1.50
The left hand column gives a guide to price levels for large-to-medium size buyers for general purpose grades in August 1995. The right hand column shows the latest prices for September 1995. Implied exchange rates are based on 14 September levels of: FF:DM3.443;Lira:DM1082; BF:DM20.56; Pta:DM85.21;SKr:DM4.807;DM:£2.305

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LldPE prices are tracking ldPE prices downwards but producers do not yet share the confidence of the ldPE players. A balanced market is still a month or so away, as producers were slow to reduce production earlier in the summer. Production has been cut back strongly in August with cuts and outages continuing in September. Stocks are higher than ldPE and import pressures from Sabic and Korea more pronounced, but the strengthening dollar should give relief.

In some areas like injection moulding, prices are marginally softer than ldPE. Film application prices match ldPE. Any premium was lost over the summer, but in some GP blending applications a small premium can be obtained. Imports are more troublesome in this area.

European September PS prices are below January levels. The September range is huge, anything between traded material from all corners of the globe coming in at DM1.85/kg and lower, and prices as high as DM2.15/kg claimed in some specified applications by producers. The wide price range has many explanations. Some suggest there is still a currency adjustment with Italian and Spanish prices still on average the highest in the European market. Others point to the emergence of two-tier pricing with producers still able to ask a premium from their customer base in some specified applications, whereas producers serving commodity markets are more sensitive to international pricing (ECN 24 July). However, producers agree crystal prices in Germany have fallen 5-10pfg/kg on August levels and anticipate further price weakness in October.

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To some extent the very low prices are due to cheap imports from Korea, US, Latin America and eastern Europe which now make up some 10% of the European marketplace. There is talk of 30 000 tonne of Korean crystal grade in store at Rotterdam. It is said the material is often of inferior quality but in many uses, like CD jewel boxes, is acceptable.

Some higher prices may be the consequence of three and even six month deals made earlier in the quarter which looked attractive then, but in the light of current low offers and the prospects for Q4 of a sharp fall in styrene monomer pricing, must look unappealing.

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PS producers argue that producers' inventories are now under control, having declined in August and September when European styrene and polystyrene players throttled back on production. One major claimed August PS operating rates at around 50% of capacity, following maintenance, but September rates are still cut back to 60% capacity.

Although PS producers claim PS prices should reflect PS supply/demand balance, not the state of the monomer market, customers are said to be currently only purchasing their immediate requirements, believing better prices will be available in Q4 when styrene monomer could fall from its current DM1775-1820/tonne FD range to DM1000/tonne or even lower.

PVC prices are threatened on two fronts - cheap material coming in from the US and lacklustre export markets in Asia. In Europe, prices are around DM1.46-1.53/kg for pipe grade and DM1.53-1.55/kg for other applications, and even producers are conceding that numbers may fall further in the short term. US product is typically priced at £640/tonne in the UK, and there is far more of it than usual. Import figures show 32 000 tonne of US material was brought into Europe in the first six months of the year, compared with 8000 tonne for the equivalent period in 1994.

Germany is one of the weakest markets in Europe, with downstream sales hit by an 8% fall off in the building industry and producers apparently willing to drop prices to retain market share. Prices elsewhere include Pta143/kg in Spain, Lira1950/kg in Italy and £860-875/tonne in the UK. Inventory levels are high at 4-5 weeks for suspension grade. Paste grade price agreements are steady at DM1.95/kg and are likely to be rolled over, according to producers, though demand is acknowledged to be down.

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ABS is falling slightly, as lower prices for styrene have prompted customers to demand lower prices, and because its competitor product, polystyrene, has fallen sharply. Numbers are also softening in the Far East, as plants which were closed down when raw materials were high are now coming back onstream. UK spot numbers are now around £1500/tonne for black material and £1600-1700/tonne for coloured product. Though generally reckoned to be more stable than many polymers, ABS is likely to be bruised by the slowdown in the motor industry in Europe. The US, with continuing demand for computers and automobiles, remains upbeat.

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PET is in a unique position in the bulk polymer marketplace. Underlying raw material costs are still rising. At least one PET producer is looking for price increases of around 4% for October. This would reflect expected increased raw material costs, but it is not clear whether this is a universal move or an attempt to increase prices at the lower end of the European DM3.30-3.60/kg.

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However, weak polymer pricing and increased Far East imports coming into the European market in August and September may prove a difficult backdrop to these attempts.

Asian players have switched production from fibre to bottle resin where possible, in response to China's reduced fibre imports. Producers, however, argue material is tight and they are having difficulty meeting buyers' requirements.

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