INEOS targets €125-135/t January rise for Europe polyethylene

23 December 2010 11:50  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--INEOS plans to increase polyethylene (PE) prices by €125-135/tonne in January following a €105/tonne ($138/tonne) rise in the ethylene settlement, a company source said on Thursday.
“We will just pass this on,” said the source. “The market is looking very solid.”

INEOS planned to increase linear low density PE (LLDPE) prices by €125/tonne, high density PE (HDPE) by €130/tonne, and the tightest grade, low density PE (LDPE), by €135/tonne.
If these increases went ahead, and buyers feared that they had every possibility of doing so, at least partially, PE prices would be approaching the record highs of August 2008, when gross LDPE prices were at €1,560-1,590/tonne FD (free delivered) NWE (northwest Europe). December 2008 levels slumped to €700/tonne FD NWE as crude oil prices crashed.
LDPE gross prices in December 2010 were trading at a minimum of €1,400/tonne FD NWE, up €30/tonne from November, and buyers were under pressure to accept more as retroactive contracts were settled. LDPE gross prices could be discounted by up to 5%, depending on the size of the customer.

The spot LDPE price, done on a net basis, was well above €1,300/tonne FD NWE. The fact that the spot price was so high compared with the monthly gross price indicated a strong market.

PE graph

INEOS also hinted at the possibility of a further price rise in February.

A PE buyer said: “Europe is not attracting imports at the moment, Middle Eastern suppliers are exporting to Asia where netbacks are better. We will just have to pay more if we want to get the material.”

He added: “We might not have to pay the full €130/tonne increase, but I can’t see us getting away with less than the ethylene [increase] plus some margin.”
Such a hike on HDPE and LLDPE meant a larger percentage increase than on LDPE, where tight availability had led to pricing breaking away from other PE grades.

C4 commodity LLDPE prices had fallen sharply during the fourth quarter due to imports. At their lowest point net levels had been below €1,100/tonne FD NWE, but were now climbing up to €1,150-1,160/tonne FD NWE as demand improved and imported volumes dwindled.
HDPE margins had been dramatically weak during parts of 2010, and net prices had barely been above the ethylene contract price in the early part of this year's fourth quarter.

By November, HDPE availability had tightened due to reduced imports and reduced output in Europe, and PE producers managed to improve the spread between ethylene and HDPE.
The European PE market in 2010 had been far stronger than most sources had expected, and many buyers now feared that the influx of imported volumes, expected from new capacities in the Middle East, would not be available until well into 2011, if at all.

Asia was the preferred exporting partner for the new capacities, and as long as netbacks to that region were better than for export to Europe, they would continue to make their way eastwards.
“The longer the new plants are delayed, the more time growth has time to catch up with new capacities,” said a PE producer. “China and India have the potential for enormous growth, and if it is less than predicted, those economies will still be growing. Everything is relative.”

PE is used extensively in packaging and household goods and in the agricultural sector.

($1 = €0.76)

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By: Linda Naylor
+44 20 8652 3214

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