Outlook '06: Euro polyolefin makers see Q1 upturn

10 January 2006 11:32  [Source: ICIS news]

By Linda Naylor

ldPE packaging from BasellLONDON (ICIS news)--The European polyolefins industry has started the New Year in a more positive mood than was expected at the end of 2005. Polyethylene (PE) and polypropylene (PP) have stabilised in January and producers are confident of an upturn in pricing during Q1.

2005 was a year of two distinct halves for PE and PP in Europe, encompassing two full cycles and witnessing the volatility which has become a feature of these markets over the recent past. 

Low density (ldPE) prices began the year high at Euro1,190/tonne FD NWE (free delivered NorthwestEurope), but fell sharply to Euro830/tonne FD NWE by June. July saw an immediate upturn and prices rose steadily into November, reaching Euro1,290/tonne FD NWE, close to a record high. A slow market in Asia and weakening feedstock led to erosion during December but a rapid turnaround in naphtha prices led to a swift change in Asian and European polymer and monomer markets.

High crude oil and naphtha prices, coupled with strong demand in emerging regions, particularly Asia, have remained the main drivers in these markets.

European demand was flat in 2005, and 2006 is only expected to grow at modest levels. China, on the other hand, continues to consume increasing volumes of PE and PP. One Chinese producer forecasts PE demand growth at 14-15% in 2006, higher than the economic growth projection of 8.5-9%.

Two new capacities in China and the start-up of only a small part of Iran’s massive planned capacity during 2006, will have little impact on global markets this year. In fact, some players even expect a shortage of PP as propylene comes on stream more slowly than ethylene. Players stress that there is a need for more on-purpose propylene monomer output as propylene as a cracker bi-product is not enough to supply the market’s PP needs.

Europe has little new production planned. Recent increases in output have been in central Europe where growth often runs into double digits but where per capita consumption is low. Future new output, apart from Huntsman’s new low density polyethylene (ldPE) plant due on stream in Q3 2007 in the UK, is expected to be mostly on a scrap-and-build basis.

European ldPE prices January-December 2005

ldPE graph

Commoditisation is another feature of this market which will loom larger in the near future, particularly in high density (hdPE) and linear low density (lldPE) as Iran and Saudi Arabia bring on line their new huge gas-based capacities in the Middle East. The impact of this is likely to be felt from 2008 onwards.

Last year saw the launch of the London Metal Exchange’s (LME) plastics futures trading. Reference prices have recently moved closer to the physical market after sometimes straying some way apart from them during 2005. Financial markets in particular have shown a keen interest in the new LME product and polyethylene terephthalate (PET) is due to be added to the plastics futures portfolio in 2006.

A response to the recent poor performance of chemicals markets has been the sale of two polymer industry giants, Basell and Innovene (a spin-off of most of BP’s chemical portfolio). Basell was bought by Access Industries, while Ineos - Innovene’s buyer - was already established in the chemical industry. Many players expect a tougher stance from such producers in the future as they are forced to improve margins.

By: Linda Naylor
+44 20 8652 3214

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