09 March 2009 15:01 [Source: ICIS news]
LONDON (ICIS news)--Polyethylene (PE) producers have cut back output to such an extent that they are able to push through heavy price increases, in spite of the current weak global economic outlook, sources said on Monday.
“We have been offered increases up to €120/tonne ($152/tonne) by all our suppliers and it doesn’t look as though we will be able to avoid a big part of it at least,” said one buyer.
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“We will have to pay more, that’s clear. But these increases come at a time when our demand is down and the future is very uncertain,” said another buyer.
Sources estimated that PE production rates were running at 70-80%.
PE producers had cut back capacity in a move to secure margin in the polymer business. They had also exported big volumes in January and February, when arbitrage opportunities were high.
“Stocks are at an all-time low,” said a PE producer. “It’s true, some sectors of the market are showing no signs of recovery, but product is tight. The output of ethylene across
Ethylene contract monomer prices had risen by €85/tonne in March, improving ethylene producers’ margins. This increase upstream had exerted more pressure to downstream PE players, however.
Some PE buyers questioned the validity of the new higher monomer price in March.
“I don’t see how they can justify this increase, said one puzzled European PE buyer. “How is this ethylene price settled? Who decides it? Oil has been stable for some weeks now, and there’s been no big change in naphtha between February and March.”
Demand for PE was weaker than in early 2008, but selling sources reported surprisingly good volumes in March.
One producer was even considering further increases in April, in spite of fundamentally poor demand and the start-up of new capacities, mainly in the Middle East, which would inevitably affect
“Even if we get €120/tonne for March, that won’t be enough to get us back to profitability” said the producer.
“We have to cut back further so we don’t end up making non-profitable business in April and May. We will have a tight supply/demand balance and crazily weak demand.”
Buyers were looking for salvation in the new capacities which were now coming on stream, but they had been long in coming, and they were still not offered huge volumes of imported material.
The success of April hikes would depend much on the demand pull from Asia, and continued cutbacks in
New capacities in the Middle East had been planned with
PE producers in
($1 = €0.79)
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