China PE sellers use arbitrage to sell material to Europe

22 March 2011 12:17  [Source: ICIS news]

(Revises fifth and sixth paragraphs for clarity.)

China PE sellers use arb to EuropeLONDON (ICIS)--Offers of polyethylene (PE) from China to Europe have grown quickly as prices in Europe rise and those in Asia remain flat, sources said on Tuesday.

“It’s not just high density [HDPE] injection that’s on offer, it’s other grades as well,” said a trader. “I can sell blowmoulding in Europe at €1,350/tonne [$1,929/tonne] and they’re offering €100/tonne below.”

Prices are on a delivered duty paid (DDP) basis.

An HDPE buyer, who admitted paying well above €1,300/tonne FD (free delivered) NWE (northwest Europe) to its European supplier, said: “I have been offered product at €1,250/tonne [DDP].”

The sticking point for buyers to accept offers from overseas sellers is the amount of time it will take for the material to arrive.

The trader said the minimum amount of time it would take to receive material would be six weeks, plus time for clearing and loading the material onto pallets. “If you ask me, it’s closer to eight weeks than six in total. Sailing time alone is six weeks,” the trader said.

A major European producer agreed with the trader, adding that that April would be another strong month.

“We expect a slender increase in the April ethylene monthly contract, and we will go for margin improvement in HDPE. Product is still tight and imports won’t arrive before May,” the producer said.

Not all European producers are expected to target margin improvement in April, however.

Some major sellers had aimed to cover just the increase in ethylene in March, and they are also expected to follow this strategy in April, maintaining that the PE market cannot support continued price hikes, which have led to record high prices for some grades.

HDPE prices have increased by over €300/tonne in the past three months but are still short of their record high level in 2008. Low density PE (LDPE) prices are at a record high and material is globally tight.

More increases in April HDPE prices are expected to attract some imported product, but markets are still uncertain as crude oil prices remain volatile.

One trader pointed out that buyers could have a shock when imported material arrived in Europe, as not all PE grades being re-exported from China are thought to be in compliance with the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals (Reach) regulation.

“Some buyers will get a shock when they are faced with a fine if the product they have bought is not Reach compliant,” said the trader.

Another trader agreed, saying: “Guys who are buying material which is not Reach compliant are taking a big risk.”

A market observer said: “Supplying Europe from Europe because of Reach is hard enough, but selling into the EU has become tougher.”

HDPE is used widely in the packaging and household goods sectors.

($1 = €0.70)

For more on polyethylene visit ICIS chemical intelligence
Read John Richardson and Malini Hariharan’s
Asian Chemical Connections blog


By: Linda Naylor
+44 20 8652 3214



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