01 February 2011 11:34 [Source: ICIS news]
By Linda Naylor
LONDON (ICIS)--European polyethylene (PE) and polypropylene (PP) buyers are facing strong pressure to pay further hikes in February following more increases in the upstream monthly monomer contracts, sources said on Tuesday.
Higher upstream costs, reduced output and a lack of imports all played a part in the hefty hikes already paid in January, and there was no let-up in pressure from sellers for February.
There was some feeling among buyers that the top of the current cycle was being reached and that upward momentum was slowing, as arbitrage opportunities became possible and naphtha prices eased. But some were already confirming price hikes, and producers were confident of success in February.
“There’s no reason why we can’t recover the monomer increase,” said one major producer, who was targeting a €25/tonne ($34/tonne) increase for February PE.
Others were being more ambitious.
“We are looking to get some more margins in February,” said another, who was aiming to increase PE prices by €60/tonne. Dow still kept its official February target at plus-€100/tonne for the month.
Few buyers expected PE prices to rise above the €25/tonne increase in the ethylene monomer contract, and some expected to be able to negotiate below this.
Low density PE (LDPE) prices have risen steadily since their low of €650/tonne FD (free delivered) NWE (northwest Europe)at the end of 2008, to their current level of €1,420-1,460/tonne FD NWE, and many buying sources were waiting for their turn to exert pressure on suppliers.
“They are making fun of us,” said one large PE buyer, “but when prices start to go down, and they will, we will do the same to them. There is no loyalty left.”
Another said: “If we can’t make money now, when can we?
Several declarations of force majeure has left the PE market tight, and February negotiations were expected to be tense.
2010 had unexpectedly been a good year for producers as Middle Eastern imports had made few inroads into the European market, leaving European producers free rein in domestic markets.
PP buyers had faced similar increases throughout 2010 as propylene shortages and production problems affected output, and January 2011 levels had risen by €100-110/tonne. PP homopolymer injection prices were now at €1,320-1,330/tonne FD NWE, from a low of €625/tonne FD NWE in November 2008.
Buyers faced increases up to €60/tonne, but a couple of producers aimed only to cover the €35/tonne increase in the propylene monomer contract.
“There is no shortage of product,” said a PP buyer. “They should absorb the propylene increase. Credit limits are really stretched. There will be casualties if they carry on like this.”
Some PP buyers were convinced of achieving a rollover, but some already reported an increase for February.
“For the moment we are being offered nothing below a plus €35/tonne for February,” said one large buyer. “I don’t know what to expect for March, but this has to change.”
PE and PP are used extensively in the packaging sectors and also in the manufacture of household goods. PP is also used in the automotive industry.
($1 = €0.73)
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