High crude prices stymie Europe March PE pipe price targets

24 February 2011 17:16  [Source: ICIS news]

LONDON (ICIS)--Players in the European polyethylene (PE) pipe-grade resin market are re-evaluating their initial price ideas for March after the surge in crude oil futures threatens to raise upstream ethylene prices way above their original expectations, sources said on Thursday.

Although PE pipe producers had said that there would be a strong push to increase prices in March, based on the need to recoup losses made in the last months of 2010 and firm margins, most had forecast that the bid would be undermined by a steady-to-slightly-firmer sentiment in the ethylene market.

As late as 22 February, ethylene prices in March had been expected to settle between rollover to plus €20-30/tonne ($27-41/tonne) as a result of balanced market fundamentals.

Crude futures were above $100/bbl at 12:00 GMT on 24 February on fears that violent unrest and production cuts in Libya would spread to other oil producers in the Middle East and North Africa. 

The spike in crude prices has hampered ethylene contract discussions by driving ethylene price ideas up by €50-150/tonne from February, according to market sources. 

Given the uncertainty upstream, PE pipe producers have been hesitant to outline price targets for March, with one saying that increases could vary between €50-100/tonne.

“The price movement will depend on what oil does over the weekend,” a source said. “I think ethylene will not settle until [28 February] and who knows what can happen in that time. The whole situation has changed in 24 hours. It could change again.”

The source added: “I hear rumours that [ethylene] players are only willing to settle prices for 14 days given the uncertain sentiment. There could be a reopener clause built into negotiations, so prices could change if oil goes up again. Or down significantly.”

PE pipe buyers seemed resigned to the fact that price increases were likely, particularly as demand was showing signs of improving heading into March. However, the magnitude of what was possible was open to debate.

A major pipe converter noted: “Producers are likely to target more than the monomer because their energy and transport costs have increased. We expect to pay €15-25/tonne on top of the ethylene movement, which could be higher than €50/tonne.”

Others, however, were adamant that they would not consent to price increases above the movement in the price of ethylene. This was because there remained ample availability amid slow buying interest in the key Chinese market following the Lunar New Year holiday, leading to a build in inventories and possibly weighing on global PE sentiment.

A second pipe manufacturer said: “We cannot keep pace with these movements. It does not make sense to produce when we cannot pass the increase on to our consumers.”

($1 = €0.73)

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By: Stephanie Wilson
+44 20 8652 3214



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