FocusEurope PE nervous on conflicting factors

14 March 2008 15:18  [Source: ICIS news]

By Linda Naylor

 

LONDON (ICIS news)--The European polyethylene (PE) market was beset by a number of contradictory factors in March which led to an uncertain market, sources agreed on Friday.

 

“Buyers have been expecting lower prices for weeks now, but with oil as it is, I can’t see prices falling easily,” said one major PE producer.

 

Fresh record highs in oil meant that little change in the upstream ethylene market for Q2 was expected.

 

The high oil price was partially negated by the weak dollar against the euro but margins at the cracker level were low, and PE producers generally expected to be paying much the same price for second-quarter ethylene as they had in the first quarter, in spite of recent low-priced spot deals.

 

The first-quarter ethylene contract stands at €1,023/tonne ($1,598/tonne) FD (free delivered) NWE (northwest Europe), an increase of €78/tonne over the 2007 fourth quarter.

 

Expectations of lower prices in the PE market have been running high for some time, but only minimal relief has been available to buyers, as oil has continued to climb.

 

Some lower prices were beginning to emerge for March, but for monthly business, price decreases were limited to €10-20/tonne in most cases. Northern Europe was widely reported as stronger than southern Europe. 

 

The spot market for all grades of PE showed a different picture and numbers have been under downward pressure for some weeks.

 

Players expected the threat of imports to keep price levels in Europe in check.

 

“What will keep Europe in check will be the levels of pricing and the attractiveness to importers,” said a high density polyethylene (HDPE) producer.

 

Imported volumes were affecting southern Europe in particular, but these volumes were mainly HDPE grades, and low density polyethylene (LDPE) was still in good balance and linear low density polyethylene (LLDPE) were still in balance.

 

The inability to export, due to competition from dollar-based product, was weighing on some markets, but for the moment producers felt that they could maintain a steady position.

 

Inventories along the chain were considered to be low, as converters were not prepared to hold volumes of high-priced stock.

 

Another factor which led to hand-to-mouth buying was the fact that credit lines were challenged at many smaller accounts, as PE also traded at record high price levels.

 

Several sources expressed the opinion that the only way to keep PE prices firm would be to cut production at the cracker level, and while some producers said that they were talking about this, few were yet ready to take such a step.

 

The trend of PE in the coming weeks was widely expected to be determined by the new ethylene contract, the amount of imported material on offer and the level of demand in the market.

 

PE producers in Europe include INEOS Polyolefins, Saudi Basic Industries Corp (SABIC), LyondellBasell, Total Petrochemicals, Dow, Repsol and Polimeri Europa.

 

($1 = €0.64)

By: Linda Naylor
+44 20 8652 3214

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