FocusEurope PE, PP buyers get little relief in steady market

08 November 2010 13:33  [Source: ICIS news]

By Linda Naylor 

Polyethylene pelletsLONDON (ICIS)--Buyers of polyethylene (PE) and polypropylene (PP) in Europe have not been able to procure the lower prices for material they were so confident of achieving by the end of 2010, as there is limited availability for most grades, market sources agreed on Monday.

Buyers had been expecting relief from the constant round of higher prices, which have been such a common trend this year.

However, delays in new capacities in the Middle East, coupled with careful monitoring of output of European product and, more recently, production constraints caused by strikes in France last month, meant that most PE and PP grades were not in oversupply.

In the case of low density polyethylene (LDPE), product availability was restricted globally, and European buyers were even faced with higher prices in November.

Permanent capacity closures in 2009 had not been fully covered by two new LDPE capacities in Sweden and the UK, and UK buyers in particular were faced with hefty price hikes in November.

“We have been given a plus £50/tonne ($81/tonne, €57/tonne) on a take-it-or-leave-it basis,” said one large PE buyer in the UK.

A major producer agreed: “We are offering a plus £80/tonne across the board for LDPE in the UK, and if buyers don’t want to accept it, we won’t sell there.”

UK prices had fallen below those in mainland Europe as the pound sterling fell against the euro. But in mainland Europe, buyers were faced with increases, too.

The retroactive nature of many LDPE accounts in Europe, where product was delivered but the price only settled at the end of the month, meant that discussions were protracted and not yet fully under way, but the trend was clear.

“They are talking about plus €20/tonne for November, but I will push for a rollover. There is no justification for an increase, their margins are already good enough,” said one medium-sized buyer.

Producers, however, complained that margins were getting squeezed as crude oil and naphtha prices soared. The weaker US dollar had some mitigating effect on higher upstream prices, but costs were higher, with Brent crude oil at $87.65/bbl on Monday, and naphtha swaps at $784-794/tonne CIF (cost, insurance and freight) NWE (northwest Europe).

High density polyethylene (HDPE) and PP were also firmer than most buyers had expected.

“We are not able to get hold of supplementary volumes at the same price that we are paying for our monthly volumes,” said a large HDPE blowmoulding buyer.

Net HDPE blowmoulding prices were below €1,000/tonne FD (free delivered) NWE, but new spot offers were now above €1,000/tonne FD NWE. A similar picture was also seen in the HDPE injection and film sectors.

“I expect some easing for December,” said a large HDPE injection buyer, “but I don’t expect more than a €30/tonne decrease now, not like the €100/tonne I thought would be available.”

There was more availability of PP imports than for some PE grades, but prices were steady, and net prices below €1,120/tonne FD NWE, were no longer available.

Some PP producers were even able to achieve small increases, in line with the €18/tonne hike in the November monthly propylene monomer contract price.

Several sources put the reason for the current unexpected strength of the market down to the situation in France, where strikes in October left several declarations of force majeure in place.

Total Petrochemicals had already held a long-term declaration of force majeure in place for PP, and the strikes in France exacerbated this.

There was no official comment from Total Petrochemicals, but sources said that force majeure restrictions were still in place as production was now getting back to normal after the strikes.

The only PE grade that many market sources considered to be weak was C4 linear low density PE (LLDPE). Imports were certainly making their mark felt, and the traditional €50/tonne gap between LDPE and C4 LLDPE had leapt to €150/tonne.

Most sources said they expect such a gap to remain in place between the two grades, as improved offers resulting from new capacities were made in Europe.

However, the effect of lower prices in the C4 LLDPE sector was beginning to have an effect on demand.

“Blenders [of LDPE and C4 LLDPE] are using as much LLDPE as they can in their blends now, because it’s much cheaper than LDPE, so we are seeing better demand for LLDPE,” said an LLDPE producer.

Sources said that the impact of this had not yet been felt in the LDPE market.

“I expect LDPE to remain firm well into 2011,” said another producer.

New PE and PP capacities from the Middle East and Asia would have an effect on European pricing sooner or later, several producers admitted. But in 2010, they had not had the impact that most buyers and sellers had anticipated.

($1 = £0.62/$1 = €0.71)

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By: Linda Naylor
+44 20 8652 3214

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