Europe PE, PP buyers frustrated by new olefins contracts

28 April 2011 10:36  [Source: ICIS news]

LONDON (ICIS)--Several polyethylene (PE) and polypropylene (PP) buyers in Europe expressed concern on Thursday over the price increases in upstream ethylene (C2) and propylene (C3) contracts.

“The market is not going to be able to support this,” one PP buyer said, commenting on producers’ targets to cover the €35/tonne ($51/tonne) increase in the May propylene contract price.

The contract settled on 27 April at €1,245/tonne FD (free delivered) NWE (northwest Europe).

“They are making fun of us,” he added.

Another PP buyer said the new propylene contract price was too high and failed to reflect market fundamentals.

“We’ve been robbed again,” he added.

PE buyers are no less frustrated.

“The best they can get from this plus €25/tonne is a rollover in PE,” one buyer said.

The ethylene contract for May, which also settled on 27 April, was up €25/tonne from the previous month at €1,230/tonne FD NWE. Producers have already made it clear they will seek at least to cover the €25/tonne increase in the monomer contract, with some sellers gunning for more.

Global chemicals giant Dow Chemical has already announced a €100/tonne increase for May PE pricing in Europe, based on increased costs, while another PE producer said it would extend PE prices beyond the €25/tonne increase in the new ethylene contract.

“We need to give a very clear message to the market which was expecting a decrease,” the PE producer said. “Cracker profitability is low. Linear low density polyethylene [LLDPE] and high density polyethylene [HDPE] are not wealthy businesses.”

PE and PP prices have been rising steadily throughout 2011 and some buyers started to hope the upward momentum would end. However, the new monomer contract settlements put paid to any hopes.

HDPE prices have increased almost €300/tonne in 2011 to trade around €1,300/tonne FD NWE on a net basis in April, while low density polyethylene (LDPE) prices have increased by €200/tonne to trade at €1,450–1,480/tonne FD NWE on a net basis.

PP prices have increased by more than €200/tonne since November 2010 and are currently trading around €1,400/tonne FD NWE.

While some offers of imported product in the HDPE sector were expected to dampen the effect of producers’ targets in May, there was no relief for LDPE and PP buyers.

“There is simply no alternative,” one large PP buyer said. “The few offers of imported material have been almost at the same level as the European producers.”

Not all producers targeted margin improvement on PE and PP.

“We are looking for olefin recovery and no more,” a major producer said. “How much more can the market take?”

Crude oil and naphtha prices, meanwhile, continue to rise. Naphtha was within reach of a three-year high in Asia on Thursday, as the contract price for the first half of June rose to $1,099–1,102/tonne.

Discussions in the PE and PP markets in Europe are expected to get underway during the next few days.

($1 = €0.68)

For more on PE and PP, visit ICIS chemical intelligence

By: Linda Naylor
+44 20 8652 3214

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