Europe PE buyers target lower prices in demand lull

01 September 2008 14:51  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS news)--Europe polyethylene (PE) buyers are holding out for lower prices in the coming weeks on a drop-off in demand, with sights set on a decrease in October at the latest, several market players said on Monday.

“We have not seen August demand as low as this for several years,” said a major European PE producer.

September demand was seen as a key factor in determining where PE prices would land when monthly discussions got under way.

Said another PE producer: “Year-to-date demand is clearly weaker than last year, and we can’t realistically expect an upturn during the rest of the year.”

Added a large PE buyer: “We are working on low stocks right now. Working capital is critical. Credit is getting more and more difficult.”

In spite of the morose market picture sketched by many PE players, some producers pointed out that they simply could not allow prices to fall in September.

“We are still working with the high ethylene costs of quarter three,” said a third PE producer. “Our costs won’t change in September. We cannot allow prices to fall.”

While producers’ quarterly monomer price was still high, at €1,228/tonne ($1,806/tonne) FD (free delivered) NWE (northwest Europe), spot ethylene monomer prices were experiencing sharp downward pressure.

Spot ethylene was assessed at €1,080-1,120/tonne FD NWE pipeline at the end of last week by global chemical market intelligence service ICIS pricing, and most expectations were for a lower fourth-quarter settlement.

The disparity between spot and contract had again prompted speculation over the possibility of switching to monthly monomer contracts.

PE prices globally had fallen from record high levels, as oil prices eased and demand waned.

Brent crude was trading down to $113.35/bbl, from its record high level of just below $147/bbl in early July.

September discussions were expected to be protracted. PE buyers would buy only what was necessary to avoid buying higher-priced material ahead of what they saw as an inevitable price drop.

Said a high density PE (HDPE) buyer: “Whether we will be able to buy at lower prices in September is still up for grabs, but come October, and (PE) prices will be lower.”

Prospects of new capacities due on stream in the Middle East and to a lesser extent in the UK, expected to hit the market early 2009, also encouraged PE buyers to maintain low stocks.

Low density PE (LDPE) gross monthly prices for August settled at €1,560-1,590/tonne FD NWE, up €30-50/tonne over July. Spot LDPE prices, in contrast to monthly prices, had eased down to €1,420-1,450/tonne FD NWE.

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

($1 = €0.68)

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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