OUTLOOK '11: Europe polyolefins players expect strong start to 2011

27 December 2010 11:30  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--European polyethylene (PE) and polypropylene (PP) producers are expecting a strong start to 2011 as upstream costs soar, following a better-than-expected year in 2010.

At the end of 2009, imports were about to flood the market, the economic outlook was gloomy and the fallout from the spectacular fourth quarter of 2008 was still fresh in some players’ minds.

While the eurozone is still under pressure and expected to remain weak, and possibly weaken further, PE players are now more confident of a strong year to come than they were 12 months ago.

“Buyers have been disappointed with Middle Eastern suppliers and they are coming back to us with strong volumes requests for 2011,” said a major producer. “I think we will see a strong 2011, supported by demand from China.”

January was expected to start with a bang in the European polyolefins market. Spot prices, particularly in the PE sector, were already soaring at the end of December due to expectations of a strong hike in the new January ethylene contract price, which settled up by €105/tonne ($138/tonne) at €1,110/tonne. 

One major producer, who had been expecting this increase, was aiming to hike PE by this amount and more. The propylene contract also rose, by €110/tonne, and polypropylene prices were expected to follow in its wake.

The mood in the low density polyethylene (LDPE) market was for a strong 2011 following several permanent capacity closures in 2009, but sources’ opinions differed over the rest of the PE market.

High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) were looking firm for January, but the future was unclear for these grades, as it was HDPE and LLDPE that would be most affected by imports.

Sentiment in the PP market was less bullish than in PE, but PP producers were also confident, predicting a tight monomer situation due to reduced refinery runs and cracker output.

There was hesitation from many sources, both buyers and sellers, when considering 2011 after getting the prognosis so wrong for 2010.

“There are so many different elements to consider that it is particularly difficult to read the coming year,” said another producer.

There was no sign of erosion in crude oil and naphtha markets, and monomer was also looking strong. The threat of polymer imports still loomed, but now most sources did not expect much to arrive in Europe in the first half of the year. The second half could see more, but much depended on the strength of demand in Asia.

“Material from the Middle East will be drawn eastwards, not westwards. Europe is not a logical destination for Middle Eastern producers,” said the major producer.

Buyers did expect to be able to get hold of imports in 2011, however, particularly during the second half of the year. Not only was the Middle East producing fresh quantities of polyolefins, but new plants were also coming on stream in Asia, and imports into that region would be reduced.

Many of the potential exporters from the Middle East also had a foothold in the European polyolefins market, in joint venture partnerships. It was widely considered that these players would be cautious when introducing product into Europe.

“These guys also want a return on their investment,” said another market source. “Their plants cost far more than they had originally budgeted. They won’t dump product into Europe.”

European producers had placed themselves strategically away from commodities in recent years, in a move to avoid a head-on clash with importers as plants exported material.

“We are no longer in commodities,” said another producer. “Anything that finds its way into Europe will be commodity polymer. We can cope with that.”

Some players added a note of caution, however, and not all felt that they could escape the tide of new capacities coming on stream in low-cost regions.

“We do expect the Asian market to soak up Middle Eastern capacity, and that we’ll have a balanced 2011. New plants won’t run at their designed capacity but sooner or later it will have an impact. It can go from sunshine to rain very quickly.”

($1 = €0.76)

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By: Linda Naylor
+44 20 8652 3214

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