01 December 2008 11:20 [Source: ICIS news]
By Linda Naylor
Spot low density PE (LDPE) plunged to close to €600/tonne ($759/tonne) FD (free delivered) NWE (northwest Europe) by the end of November, €400/tonne down from the end of October.
The fall was driven by a slump in demand - estimated to be down by around 12% compared with 2007 - oversupply and a morose Asian market, said sources.
However, several sources began to feel that spot prices at least were close to the bottom.
“We have seen some of the large European buyers come back in to the market for big volumes in November,” said one major producer which was now considering turning back up production levels after running at 80% for several weeks.
Another producer agreed: “If we look back at November, we’ve seen a gradual recovery - not at target levels - but more normal than a few days ago.
"There has been a gradual change in sentiment. Traders are looking for material.”
Nevertheless, the change in attitude came at a price.
“If we want to sell big volumes, we have to go low,” said the producer.
Some sources argued integrated margins were still strong with the fourth-quarter ethylene price at €1,120/tonne FD (free delivered) NWE (northwest Europe), and that integrated PE producers were still making good money even with PE at €600/tonne FD NWE.
Production was generally running well below capacity, however, and the industry was estimated to be at 80%.
One PE producer said that fixed costs got higher as production rates were reduced, and that the spread between the quarterly monomer price and PE was not the sole criterion to be used when looking at production costs.
Sources generally felt that it was unlikely that spot prices would fall much further for the rest of the quarter. Asian prices had rallied a little and an equilibrium between Asian and European spot prices had been reached.
Monthly pricing was different, as prices had not fallen so far as spot yet.
While November prices had fallen, they were still not in line with spot prices, and already there were strong indications that prices were losing more ground as December business got under way.
LDPE gross monthly prices fell by almost €400/tonne in November, to €860-870/tonne FD NWE by the end of the month, but gross prices at this level were still higher than spot, and lower offers were already heard in the market from western European producers for December.
“We have been offered material well below €800/tonne FD NWE for December from more than one source,” said one medium-sized buyer. Monthly gross prices are typically discounted.
By the time December monthly discussions got under way, most players expected more of a balance between spot and monthly pricing.
December volumes were expected to be very weak. Many converters were shutting production for longer than usual and a likely much lower first-quarter ethylene settlement has led to expectations of further price drops in PE.
“Quarter one is going to bring with it a whole different set of circumstances,” said a buyer.
A new round of discussions would begin when a new ethylene price would alter PE producers’ costs significantly. Many players expected a drop of €500-600/tonne from the €1,120/tonne fourth-quarter ethylene contract .
Buyers were expecting to be able to push harder next quarter, as feedstock costs would be lower, but some producers had another idea in mind.
“We cannot give more away in January. We have given all the first-quarter ethylene decrease away already,” said one producer.
So while the unprecedented speed in the fall of PE spot prices seemed to be abating, there was little chance of producers turning the tide in the short to medium term.
PE producers in ?xml:namespace>
($1 = €0.79)
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.
|ICIS news FREE TRIAL|
|Get access to breaking chemical news as it happens.|
|ICIS Global Petrochemical Index (IPEX)|
|ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index|
Asian Chemical Connections