FocusEurope PE buyers face Dec price hikes on higher feedstock

29 November 2010 13:13  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--European polyethylene (PE) buyers are facing yet more price rises for next month following a €27/tonne ($36/tonne) increase in December's ethylene monomer contract, market sources said on Monday.

“Our margins are still compressed and there is huge pressure upstream,” said a major PE producer.

The average November naphtha cracker contract margin was on a par with that seen in March - and second only to January, the worst margin month in 2010 to date - following a sharp rise in naphtha prices and a drop in the dollar versus euro rate, according to ICIS data.

Dow had already announced a €70/tonne increase for all its December PE sales before the ethylene contract was settled, and others now pitched in, anxious to recover increased costs.

This price hike announcement had been met with a great deal of scepticism by much of the market, but it was being followed by other producers who did not intend to lose margin further in December. With some grades of PE becoming increasingly tight, some sources said that it was not such an outlandish move after all.

“LDPE [low density PE] prices are increasing, if you have the right grade,” said a re-seller, who reported business above €1,300/tonne FD (free delivered) NWE (northwest Europe).

“I have had to pay a €20/tonne increase for LDPE in November, but I think I can hold off buying next month,” said a buyer who expected prices to ease in a traditionally low volume month.

Net LDPE prices for monthly business were around €1,280/tonne, while spot prices were moving higher, above €1,300/tonne FD NWE in some cases, where buyers could find no alternative supply.

LDPE availability had become tight following permanent closures in 2009 and producers confidently spoke of a structural shortage in LDPE.

“We have had a monster November,” said one producer, “and we will be pitching at plus €60/tonne for December.”

Another, however, was more cautious.

“The new LDPE capacities in Europe have not been running well, and at some point there will be some jostling for position,” said another LDPE producer, referring to the two new LDPE plants in Europe - SABIC’s 400,000 tonne/year unit in the UK and Borealis’s new 320,000 tonne/year plant in Sweden.

High density PE (HDPE) grades were also getting tight, particularly HDPE injection melt flow index (MFI) 7, and also blowmoulding. Some sources were beginning to wonder whether production had been cut back for these grades as the market was showing signs of shortage.

“HDPE injection is getting really tight. I’ve had people banging on my door trying to get hold of some,” said a UK-based trader.

HDPE prices had not moved up in line with LDPE and producers had begun to refuse extra volumes to contractual customers unless they paid higher prices, due to the low net levels paid at large HDPE accounts. Buyers were now feeling the pinch.

“I have been told not to expect the same level of discount I have had this year in 2011, and to change suppliers if I want the same conditions as in 2010,” said one large HDPE buyer.

Buyers were frustrated that the expected imported volumes had not arrived to give them some relief from high European prices, and one producer said that buyers were now prepared to accept changed terms for 2011, as they depended less on imports.

“Customers have had their fingers burned with Middle Eastern product. They are fixing big volumes with us for next year,” said one of the producers.

Discussions for December PE were expected to be protracted and fractious. LDPE buyers had been faced with hikes for many months, with only short-term relief earlier in 2010.

PE is used extensively in packaging and household objects.

($1 = €0.75)

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By: Linda Naylor
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