FocusChance of Asia to Europe polymer arb grows

04 August 2008 15:24  [Source: ICIS news]

By Linda Naylor

 

LONDON (ICIS news)--Arbitrage opportunities between Asia and Europe are looming as China polymer prices weaken and Europe prices rise but few players are so far willing to take the risk, market sources said on Monday.

 

There were no widespread reports of material being offered into Europe from Asia at present but even with import duties of 6.5% for many Asian exporters of material, these price levels are workable, and any further downward movement in Asia, or upward in Europe, could prompt increased activity.

 

The six-week time lag that will ensue after new business is booked has led to hesitation from potential buyers, however.

 

“I don’t intend to have much material in my warehouse by September,” said one trader, unsure of how monomers would fare in the fourth quarter.

 

“People see the price difference between Asia and Europe, but shipping time of six weeks will put most of them off,” said a major European polyolefins producer.

 

High density polyethylene (HDPE) blowmoulding prices fell by $50/tonne (€32/tonne) to $1,650/tonne CFR (cost and freight) last week in China, while European levels continued their steady climb, to net levels of €1,400/tonne FD (free delivered) NWE (northwest Europe) in early August having gone up €140-200/tonne in July.  

 

European HDPE producers are looking for even higher prices throughout August, having mostly covered the €190/tonne increase they took in third-quarter ethylene.

 

The product which showed most potential in terms of arbitrage opportunities is polystyrene (PS) but even here expectations of an influx of material are not widespread as upstream markets remain volatile.

 

General purpose PS (GPPS) prices are down to $1,680-1,700/tonne CFR in China and Hong Kong, while European GPPS prices traded at €1,350/tonne FD NWE at smaller and medium-sized accounts at the end of July.

 

European PS producers are expected to be able to increase prices in August as styrene monomer contracts had gone up, but it is clear prices are increasing only as production is slashed, not based on strong demand, and the market is widely regarded as weak.

 

“I can see that the gap between Asia and Europe is wide, but I can’t see many converters bringing material over with a six-week lead time, particularly with styrene as volatile as it is,” said a European PS producer.

 

PS feedstock styrene was playing a major role in this market, and there were some expectations of a change in styrene prices as the gap between Asia and Europe was becoming unsustainable, according to some PS players.

 

“Either Europe goes up or Asia comes down,” said another major European PS producer.

 

Polypropylene (PP) arbitrage possibilities were less imminent than for HDPE blowmoulding and PS.

 

Asian homopolymer injection PP fell by $80-100/tonne last week, to $1,850-1,900/tonne CFR, and demand was weak in the key China market, influenced by lower crude prices and weaker global economies.

 

The price for the same product delivered to European customers has risen by over €100/tonne over the past four weeks, and looked likely to strengthen further. Early August trading was at €1,300/tonne FD NWE, on a net basis.

 

This was still too high to work into Europe but further movement on both continents will change the situation.

 

It is concerns over what may happen to feedstocks in the fourth quarter which led to hesitation from most players, however.

 

“It is clear that prices will increase in August but September is open. The picture is very different from a month ago when they settled quarter three ethylene,” said one European buyer of commodity grades of PE, PP and PS.

 

Brent crude climbed towards $145/bbl in early July and is currently trading in the mid $120s/bbl range, leading to speculation over the direction of fourth-quarter monomer contracts, which will inevitably impact polymer pricing.

 

Uncertainty and record high polymer prices led to hand-to-mouth buying in most markets.

 

“It is clear that the current upward trend in pricing in Europe is not led by strong demand but the lack of product availability,” admitted a major PP producer.

 

Polyolefins producers in Europe include Borealis, Dow, INEOS Polyolefins, Polimeri Europa, LyondellBasell, SABIC and Total Petrochemicals. BASF and INEOS NOVA also produce PS, as well as Dow, Polimeri Europa and Total Petrochmicals.

 

($1 = €0.64)

 

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By: Linda Naylor
+44 20 8652 3214

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