FocusEurope PE buyers accept hefty hikes

11 June 2008 16:56  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS news)--European polyethylene (PE) buyers are paying substantial increases for their June volumes, with only the amount of the increase is dispute, sources agreed on Wednesday.

“I have settled June at an increase of €60/tonne ($92/tonne) today,” said one low density PE (LDPE) buyer. “Some sellers are not offering anything below €80-100/tonne, but we have managed to avoid that so far.”

LDPE gross monthly prices were averaging around €1,350/tonne FD (free delivered) NWE (northwest Europe).

Dow Europe in particular was being very firm on its increase of €100/tonne on all June PE. This stance was confirmed by several buying sources, some of whom opted to buy elsewhere.

“Dow will lose an awful lot of volume,” said another PE buyer. "It has competitors that are very happy to pick up extra sales."

“We have some flexibility below plus €100/tonne,” said one major European PE producer, “but why sell below plus €60-70/tonne? There is simply no point.”

High oil and energy costs were exerting heavy pressure on producers’ margins, and last week’s spectacular hikes in crude oil exacerbated the situation.

Brent crude oil was down from its highs near $140/bbl at the end of last week, but was still trading above $130/bbl on Wednesday.

Variable cost spot margins for ethylene fell by over €80/tonne to move back into negative territory while a €90/tonne drop in variable cost contract margins left them just above breakeven point.

When fixed costs were taken into account, Europe’s naphtha crackers operators were losing money.

It was this cost pressure which forced producers to target the significant hikes in the June PE market.

While buyers admitted that there was no escaping higher prices in June, some players expressed concern over the sustainability of such high prices.

“The situation is really scary,” said one worried distributor. “There is a total squeeze in the market. Nobody is making any money. When we finally sell and make some profit, we have a bad debt.”

Several sources agreed that credit lines were now a major problem at many accounts.

PE producers were expected to continue targeting higher prices in July, as third-quarter ethylene contacts would almost certainly increase.

Some buyers were thought to be building stocks ahead of this move, in order to avoid paying yet more increases next month.

“Those buyers who can, have built up stock,” said a high density PE (HDPE) buyer. “Another increase in July seems inevitable, but some converters will be able to work through the month without buying.”

Upward pressure was being felt globally as high oil and energy costs soared.

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

($1 = €0.65)

Click here to find out more on the European polyethylene margin report
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By: Linda Naylor
+44 20 8652 3214

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