INSIGHT: A tricky first half for Europe polymers

16 January 2008 16:47  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Europe’s polymer producers have gained some ground at the start of 2008 in the face of still higher feedstock costs but it will be all critical demand that governs their fortunes in the first quarter.

Polyethylene (PE) and polypropylene (PP) prices are being pushed up but January volumes do not look as though they will be great.

Margins have been squeezed by higher feedstock costs and although those increases have been largely covered the market is divided on future prospects.

Both integrated and non-integrated producer margins have fallen as feedstock naphtha prices have soared.

Data from the latest Weekly Margin – PE Europe report from ICIS pricing suggest that, for example, high density polyethylene (HDPE) non-integrated margins have fallen to a very low level although not quite into the pits as at intervals between 2002 and 2004 and again in May 2006.

Integrated HDPE producer margins are also down sharply since August last year.

There will be some respite this month with producers pushing through price increases but sellers have reported slow demand.

Higher prices are being pushed down the chain but growing concern about Europe’s economic performance in 2008 is likely to have a negative impact on the market.

Some expect slower demand growth in the first quarter while most feel that the sector is at least moving off its period of peak demand and profitability.

Slacker demand and weaker margins will have hit fourth quarter financials. The ICIS margin analysis points up particularly the impact on the non-integrated polyethylene players.

Currently in Europe PP is felt to be less firm than PE and buyers do not expect to be paying anywhere near the full €57/tonne ($84/tonne) increase in first quarter propylene to €945 FD (free delivered) NEW (northwest Europe).

The first quarter ethylene contract price in Europe was up €78/tonne to a record €1,023/tonne.

LDPE prices were trading close to the mid-€1,300s/tonne FD NWE (northwest Europe), and PP homopolymer prices were moving up towards the €1,300/tonne FD NWE mark according to ICIS pricing. HDPE film prices were around €1,350/tonne.

The European polymers markets in 2007 were buoyed by a tightness which has persisted for some grades, most notably linear low density polyethylene (LLDPE) and blow moulding HDPE. Supplies of PP, however, are seen to be ample.

Converters have braced themselves for polymer increases and warned customers of higher prices since the start of the year. They had a difficult November and December.

But it remains to be seen how seen how successful either they or their suppliers might be at passing costs on in a weaker end product demand environment.

Polymer producers are further confounded in the UK where sterling’s decline against the euro has depressed producer product prices. Buyers are in no mood to accept supplementary price hikes in January.

In some cases, UK prices in euros were 10% below European levels and buyers were being forced to accept hikes of €100 a tonne.

Converters have talked this month about passing higher costs on to their customers.

The pound sterling has fallen from September levels of €1.48 to the pound this week to €1.32.

Currency fluctuations work both ways but slower demand does not and it would impact the entire chain. Producers may hope for some relief on the feedstock front in early 2008 as December ’07 feedstock highs dissipate but they will not escape a demand slowdown.

The first half of the year looks tricky for the entire chain. 


By: Nigel Davis
+44 20 8652 3214

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