OUTLOOK '09: Europe polyolefins head towards a gloomy 2009

30 December 2008 16:10  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS news)--Polyethylene (PE) and polypropylene (PP) prices fell by record levels in the fourth quarter of 2008, demand was down by double digits and the outlook was gloomy as the year ended in sharp contrast to 2007.

Cracker and polymer output was at an all-time low in a global economic situation which was worse than anyone could have predicted.

“Nobody’s got a clue,” said one large polyolefins buyer.

Few observers were willing to comment on what they might expect beyond the first quarter of 2009.

“We have three things coming together which are affecting demand. A seasonal factor, destocking, and the question mark over the general level of demand. It’s very difficult to know what the true level of demand is,” said another large converter.

A major feature of the polyolefins markets during the second half of 2008 had been destocking along the whole chain.

By December some producers were running their facilities as low as 50% to accommodate weak demand. Several felt that there could be a shortage of some grades during the first quarter 2009 as the double digit fall-off in polymer volumes could not reflect true demand.

Several said that polymer demand runs largely in line with GDP, and while much of Europe was either in, or on the brink of, recession, there was no suggestion that economies were running so badly.

Most producers expected an upturn in volumes and price at some point in the first quarter, mainly because the chain was so empty and buyers would have to come back into the market.

Not all market segments were faring badly. Construction and automotive were clearly weak and were not expected to recover short-term; food packaging was still strong, however, while hygiene and cosmetics were unpredictable, according to players.

The upstream situation added to the uncertainty in the polyolefins markets.

For the first time ever, propylene and ethylene contracts were settled on a monthly basis, with no sign of a quarterly contract emerging before the Christmas break, if at all.

Both monthly contracts recorded massive drops. January ethylene was done at €520/tonne ($733/tonne) FD (free delivered) NWE (northwest Europe), down by €600/tonne from the fourth-quarter settlement, and January propylene was done at €430/tonne FD NWE, down by €520/tonne.

Producers argued that these record price decreases had already been passed on to polyolefins market in the fourth quarter, and aimed to stabilise the market in quarter one.

“I can see that we might have some hiccup in supply in January or February. Production has been cut back and inventories are very low everywhere,” acknowledged a large buyer. “This is a blip, however, and is nothing fundamental. Markets are weak and demand is poor.”

Producers expected to continue with reduced output into quarter one, but they would then be faced with the onslaught of new capacities, mainly in the Middle East, but also in one case in Europe.

Many of these new Middle Eastern capacities had been delayed because of manpower shortages and soaring costs, but they were now coming on stream.

A weaker situation in Asia meant that more product would be directed towards Europe than had been expected earlier.

Asian growth levels for 2008 were already being revised downwards and 2009 was under question. The Asian Development Bank (ADB) forecast that annual economic growth in developing Asia would slow to 5.8% in 2009, down from a likely 6.9% this year and 9% in 2007, as the impact of the global financial crisis spread to emerging markets, according to a news report in the China Daily.

Any slowdown in Asia would impact European polymers markets as new gas-based production would struggle to find a home.

Most polyolefins producers acknowledged that the first half of 2009 would be tough, but they generally expected a better second half to the year. It was unclear what this optimism was based more on hope than expectation, however.

($1 = €0.71) 

For more on polyolefins 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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