Europe PE slump brings lower prices, cutbacks

30 October 2008 17:17  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS news)--European polyethylene demand continues to nosedive, leading to lower prices and production cutbacks, market sources said on Thursday.

“All trains are running reduced and we are considering stopping lines completely in November,” said one major PE producer.

“We simply cannot risk building any inventory. It’s all high cost and there is no demand,” said another.

Buying was done on a hand-to-mouth basis, with buyers placing firm orders only for prompt delivery.

End-month settlements, common in the low density (LDPE) and linear low density PE (LDPE) sectors, were under discussion, and buyers waited until the last moment as price ideas fell daily.

One distributor was desperately renegotiating all of its October PE settlements.

“The prices we did at the beginning of the month are now way too high,” the distributor said.

“We are settling gross LDPE levels at €1,250/tonne ($1,602/tonne) FD (free delivered) NWE (northwest Europe) today, but early-month prices were as high as €1,400/tonne FD NWE in some cases,” reported a PE producer.

Spot LDPE prices were at €1,000/tonne FD NWE and lower prices were expected. Asian LDPE spot prices were lower, at $1,000/tonne CFR.

Monthly PE prices fell by up to €250/tonne in October.

Said another PE producer: “We are only looking at integrated margins now. The fourth-quarter ethylene price is irrelevant. We expect November PE prices to fall by another €200-250/tonne at least.”

European PE prices were still well above those in Asia and the Middle East.

While PE/ethylene margins were becoming non-existent throughout October, cracker margins were still high, and players pointed out that PE could fall a long way before they dented cracker margins.

The current weak demand for PE was put down to several reasons. Recessionary fears and the economic reality had altered buying patterns all along the chain, and converters expected to be able to take advantage of lower PE prices as they had not yet had the full impact of weaker oil prices.

Another major concern in the PE market was over credit availability, said a trader.

“Credit is one thing that didn’t used to bother us at all. Now, with every truck I sell I have to talk about credit," the trader said.

"It can be whether the customer has the credit to cover the truck, but I also have to keep a close eye on my own credit."

Prices were expected to continue to go down in line with lower naphtha and global PE prices.

“One positive thing is that oil seems to be stabilising, so perhaps that might give us some stability in PE,” said a hopeful producer.

However, most market sources expected prices to be falling throughout the fourth quarter, and were already speculating on what would be the outcome of first-quarter monomer negotiations.

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

($1 = €0.78)

Click here to find out more on the European margin report
For more on PE visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Linda Naylor
+44 20 8652 3214

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