Europe spot PE prices rise by as much as 10% in January

11 January 2010 13:17  [Source: ICIS news]

LONDON (ICIS news)--Polyethylene (PE) buyers in Europe are facing heavy pressure to pay higher prices in January due to low inventories and soaring upstream costs, sources said on Monday.

“There is no slack in the system. Stocks are low everywhere,” said a trader who reported spot prices up by as much as 10% over December.

Low density PE (LDPE) spot business was not brisk in early January, but buyers had to pay increases, several admitted. Prices were reported around €1,000/tonne FD (free delivered) NWE (northwest Europe) on a net basis, up from their mid-December level of €900/tonne FD NWE.

Despite higher prices, sources sometimes reported slow demand, and sentiment was that prices in Europe were increasing more because of reduced supply and the strong pull from Asia, rather than any fundamental strength in the European market.

“Asia is where it’s happening at the moment,” said a re-seller.

“China is eating material,” said a major producer, “but we just don’t have the material to send out there.”

Producers’ stocks were low as production had been cut back to avoid a repeat of the crash in prices in the fourth quarter of 2008.

The strength of the Asian PE market meant that imports into Europe were few and far between. Production problems and feedstock supply issues affected supply from the Middle East, and sources speculated on when the long-awaited influx of new material would arrive in Europe.

“We expect new capacities to have an impact in Europe in the second half of 2010,” said a producer, admitting that much depended on how Asian demand fared during the year. Buyers hoped rather than expected that new capacities would have their effect in the second quarter of 2010.

The upcoming lunar new year holidays were also leading to speculation over the sustainability of demand in the key Chinese market. Some sources expected the Asian PE market to slow down and give some relief to buyers globally, but as many argued that Asian demand would continue to be strong during the holiday period.

LDPE prices in China were reported up by $110/tonne since mid-December, trading at $1,430-1,520/tonne CFR (cost freight).

“It’s so difficult to predict what will happen any more in these markets,” said one observer. “The focus on cash flow means that inventories are low everywhere and everyone is nervous.”

Monthly PE business in Europe had not yet begun in earnest as some regions were only due back from holiday on 11 January, but producers made it clear that they wanted price increases this month.

“Naphtha has gone up; crackers are not making any money; customers have destocked and there is limited supply. These are clear signals that PE prices will go up in January,” said one of the major European PE producers.

Brent crude prices jumped to $82.20/bbl at 12:00 hours on Monday, with naphtha also trading high, at $755-765/tonne CIF (cost, insurance and freight) NWE.

PE producer sources pointed out that naphtha was in the mid-$660s/tonne CIF NWE when the January ethylene monomer contract was settled up by €30/tonne at €870/tonne FD NWE, and that naphtha cracker margins were under pressure.

PE producers in Europe include Borealis, Dow, INEOS, LyondellBasell, Polimeri Europa, SABIC and Total Petrochemicals.

($1 = €0.69)

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By: Linda Naylor
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