UpdateDow Europe PE hike unjustified - buyers

15 August 2008 16:58  [Source: ICIS news]

(Adds comments from Dow in second and third paragraphs)

 

LONDON (ICIS news)--Dow Chemical intends to increase European polyethylene (PE) prices by €50/tonne ($75/tonne) in September, the company said on Friday, but market reaction so far has been one of incredulity.

 

Dow had earlier indicated that it intended to recover lost margin. “Dynamics are complex at the moment. People look at oil prices and immediately translate them into a decrease in PE prices," said a company source.

 

"You have to take into account all the elements. PE prices haven’t reached feedstock increases in the past 12 months. In January to May we had a huge margin compression and we have to correct this.”

 

PE converters disagreed, however, saying there was no justification for the targeted rise.

 

“This is an insult. They are living in cloud cuckoo land,” said one buyer on hearing the news. “Any justification has gone. They can’t claim the spread between naphtha and PE is low, because naphtha has gone down.”

 

The statement was made at a time when many converters expected at worst a rollover in September, after a series of hikes in which PE producers, including Dow, had covered more than the €190/tonne increase in third-quarter ethylene.

 

Low density polyethylene (LDPE) gross prices were approaching €1,600/tonne FD NWE, from their May low of €1,290/tonne FD NWE.

 

“What about our margins?” asked another bemused PE buyer.

 

Another saw it as a ploy to offset erosion, as much of the market was now expecting prices to fall.

 

“They can’t be reading the same newspapers as me,” said another buyer. “Asian prices are falling, European economies are weak, and they have increased prices by nearly €300/tonne in the past three months. They are totally unrealistic.”

 

Some grades of PE were tight and inventories were low with producers.

 

It was not yet clear if other producers would follow Dow’s lead, as market conditions globally did not seem to support yet another increase in European PE prices. Dow was unavailable to comment on the market reaction on Friday. 

 

“This market is very difficult to read,” said a major European PE producer. “Our profitability has not improved, but we will have to see what happens in terms of demand to be able to predict what will happen in Q4 [fourth quarter].”

 

August has still not settled in many cases, due to holidays and the practice of retroactive settlements but prices had clearly increased on all PE grades.

 

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

 

($1 = €0.67)

 

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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