Plastics monitor: Shifting sands

04 November 2002 00:00  [Source: ICB]

Steady volume sales in October have not prevented the continuing price erosion in European commodity plastics. As the year-end approaches producers are attempting to minimise losses

Volatility has been a feature of the European commodity plastics markets over the past year. However, quarter four pricing dynamics appear to be mirroring those of the last quarter of 2001, as price erosions accelerate with markets failing to recover from the slump of the seasonal summer slowdown.

Although volume sales in October have been described as reasonable, they have not been at high enough levels to stem the fall in prices, never mind support price increases. End September through October prices have fallen by E40-70/tonne, with even lower numbers rumoured to be in the market. Market observers suggest it is unlikely price direction will be reversed before the end of the year.

Buyers largely continue to purchase on a hand-to-mouth basis and remain in a strong position to push for lower prices. Continuing concern for the lacklustre performance of key European economies such as Germany contribute to lower market expectations.

Lower quarter four feedstock contract settlements have added to the downward slide in European commodity plastic prices. Converters argued that lower feedstock costs should be reflected in the prices they pay. European quarter four ethylene contract prices have settled down E25/tonne on the previous quarter to E515/tonne FD. Propylene quarter four contracts were down to E467/tonne, a reduction of E28/tonne on quarter three.

As the year-end comes into sight, producers will concentrate on minimising inventories in order to have the lowest possible working capital in their stocks. This agenda traditionally encourages discounts and further price falls as industry sellers focus on shifting volumes.

Yet the European plastics picture looked so different in the first half of this year. Despite a poor January, volume sales rose significantly in the second-half of quarter one.

Converter demand continued to rise throughout quarter two as buyers concentrated on re-building inventories following severe de-stocking in the second-half of 2001. Higher volume sales were also generated by increased pre-buying from purchasers attempting to avoid future price hikes. In this climate producers were able to ramp up prices through a series of monthly price hikes.

A number of industry sellers predicted price increases would continue in the autumn after a summer respite, which would be used to restore depleted inventories.

However, since the summer price rises have ground to a halt, as processors reduced purchasing in the summer, triggering a series of price falls. Weak demand and greater economic uncertainty are likely to keep prices in the doldrums for the remainder of the year.

HdPE prices fell once again in October. With no sign of any improvement in demand, industry sellers were unable to stem the downward shift in prices. Lower ethylene feedstock costs also contributed to the pressure on hdPE prices. The presence of cheaper imported material continued to undermine domestic sellers' pricing strategies. Injection moulding is down to E690-710/tonne, with film at E750-770/tonne and blow moulding material reduced to E700-730/tonne.

LldPE industry sellers failed to stabilise prices in October with price falls of approximately E50/tonne emerging in most markets. Butene grade film lldPE is now quoted at E740-770/ tonne. A lack of significant purchasing activity is undermining sellers' attempts to bring stability to the market. Quantities of lower-priced exotic material are said to be contributing to the fall in European prices.

LdPE prices have slumped since the end of September through October. Retrospective end-September prices accelerated the downward drift and lower demand fed the downward trend in October. Film prices are now placed in the range of E800-830/ tonne. Even lower prices are talked in the market, although these could not be confirmed. Key industry buyers say theyexpect certain retrospective contracts to pull prices lower.

European polypropylene (PP) numbers slipped in October. Leading producers have decided to cut back production by between 10-20% in order to match output to actual demand. The drive towards low year-end inventories is another factor in the decision to reduce output. At least one producer has announced a E70/tonne price increase for November. Market observers are sceptical whether higher numbers can be achieved in the current climate. The move is being read as an attempt to bring some stability into the market.

Polystyrene (PS) prices weakened by around E10-15/tonne in October as expectations of an improvement in demand did not materialise. Producers are making downward adjustments to their production levels as they approach year-end and reduce inventory levels. Weakness along the styrenic chain was also a key factor in the settlement of the quarter four styrene contract price, which fell by E58/tonne on the quarter three level and settled at E667/tonne FD.

Polystyrene markets tightened in the first half of 2002 as producers took action to rescue prices and margins by decreasing operating rates at their plants throughout Europe. Cutbacks started to be put in place by the end of 2001 by BASF and other producers, while Atofina was experiencing production problems.

Demand recovered in early 2002, mainly pushed by restocking and pricing quickly increased from E675-700/tonne in January to E758-780/tonne in April as severe outages affecting styrene monomer restricted polymer availability further.

As spot styrene prices climbed from E500-525/tonne to E745-770/tonne cif NWE in one week, PS producers had to press harder to achieve higher prices and numbers rose again to E985-1040/tonne in May.

By June, the market had cooled off although some smaller price increases were still filtering through. August and September saw the first signs of a slowdown in demand, followed by a downward adjustment of PS prices to E950-990/tonne.

In a separate development, Dow Chemical introduced the concept of a quarterly reference price for the European PSmarket in order to soften the effects of volatility and attempt to introduce some long-term stability. Despite receiving mixed reactions from the market, the initiative is still on the agenda.

October PVC consumption was in line with seasonal expectations and both domestic sales and exports are said to be stable. However, some minor price erosion took place at around E10-15/tonne as the construction sector appears to be slowing down in Spain, Italy and Portugal in particular. Prices are now in the $720-765/tonne range. Some European producers are having to cover the shortfall generated by monomer production problems and strikes taking place in France as well as prolonged VCM outages in eastern Europe. As the end of the year approaches, producers say November volumes are expected to be healthy but are preparing to implement their December shutdowns coinciding with converters slowing down their operations.

European PVC markets recovered in 2002 after a year of traumatic losses and erosion in producers' margins in 2001. Stronger demand, partly supported by restocking, pushed prices up and severe chlorine and VCM outages during the first half of the year backed producers' demands for higher numbers. Margins also improved.

The recovery started in Asia in early 2002, with European producers moving material east chasing attractive numbers in the region. Meanwhile, European converters also started to replenish their inventories. Here prices climbed from E510-530/tonne in January to E730-780/tonne in July. The summer slowdown did not stop producers asking for higher numbers in August and September with prices slightly up again in September at E735-780/ tonne following an unusually strong August. The PVC market remains in a stronger position compared with the same period a year ago and producers are determined to protect margins by keeping prices in line with increases in feedstock costs.

European commodity polymers prices

	Monthly contract, E/tonne
	September	October
High density polyethylene (hdPE)
Injection moulding	730-750	690-710
Film (extrusion) grade	790-810	750-770
Blow moulding	760-790	700-730
Linear low density polyethylene (lldPE)
Film grade (butene-based)	785-795	740-770
Low density polyethylene (ldPE)
Film grade	870-890	800-830
Polypropylene (PP)
Raffia grade	800-820	760-780
Injection moulding	820-840	780-800
Copolymer	870-890	830-850
Polystyrene (PS)
General purpose	950-990	935-975
High impact	990-1030	975-1015
Polyvinyl chloride (PVC)
Suspension	735-780	720-765
The left hand column gives a guide to price levels for large-to-medium size buyers for general purpose grades in September. The right-hand column shows the latest prices for October. Implied exchange rates are based on 28 October levels of: $1:E1.017; $1:£0.643; E1:£0.633.
(R) indicates revised figure

European polymer statistics 2001 (estimated), '000 tonne

Polymer	Production		Sales*		Total west European market		Change over 2000, %
HdPE	4603		4554		4600		3.95
LdPE	4681		4687		6900^		4.47
LldPE	2233		2182		6900+		-
PP	7510		7496		7057		2.66
PET	1760		1770		1840		3.37
PVC	5700		5689		5709		2.50
PS	2264		2294		2030		-3.33
* Domestic and export sales by west European producers; ^ includes lldPE; + includes ldPE
SOURCE:APME

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