Europe polymers producers miss May targets on limited hikes

24 May 2011 17:56  [Source: ICIS news]

By Stephanie Wilson

LONDON (ICIS)--European polymers producers have largely fallen short in their bid to pass upstream costs through to buyers in May, as improving availability and competitive selling has limited the scope of the hike, sources said on Tuesday.

Although some contract negotiations have yet to settle, those producers with accounts outstanding concede that it is becoming increasingly difficult to achieve hikes – or even hold the price of one or two grades steady, particularly in the polyethylene (PE) market – as the month wears on.

“Of course we try it [an increase], and in some places at some accounts, we get it but customers have stopped buying because they think it will be cheaper tomorrow than it is today,” a major seller said.

This loss of buyer confidence and subsequent slowdown in demand appears to have occurred on a global scale, freeing up the availability of certain grades dramatically.

In a change to the long-standing trend, low density PE (LDPE) contract prices are under the most pressure, with reductions of €30/tonne ($42/tonne) confirmed in much of northwest Europe, leaving May gross contract prices at €1,570-1,590/tonne FD (free delivered) EU (Europe), according to data from ICIS. These prices are subject to discounts and rebates.

The sliding sentiment has also impacted linear low density PE (LLDPE) contract prices, resulting in decreases of €10-20/tonne across C4 and C6 grades, although the more specialist C8 and metallocene prices largely rolled over. 

Meanwhile, high density PE (HDPE) bucked the downward trend on more limited availability, enabling producers to force hikes of €10/tonne on injection moulding contracts, and €20/tonne on blow moulding grades through to buyers, leaving gross prices at €1,490-1,500/tonne and €1,480-1,490/tonne FD EU respectively.

Elsewhere, balanced local supply and reasonable demand for polypropylene (PP) largely offset the import pressure building on prices, holding May contract values steady, although a few corrections of €10-20/tonne – both up and down – were heard at one or two accounts as the spread of values narrowed.

For most producers, the settlement is disappointing as many had maintained that they needed to cover the full €25/tonne and €35/tonne increase in upstream ethylene and propylene May contract prices, particularly on the HDPE market, where profitability remained low.

However, many acknowledge that current high prices are stifling demand and a downward correction has been long overdue.

A supplier explained: “This has not come as a shock; people have been saying that PE will come off for months now. We were expecting it around March/April, then the Libyan crisis pushed oil higher. Now that oil has come off, PE and PP prices will come down.”

This was echoed by many consumers, who were unsurprised by the news that June ethylene contract prices had initially settled on Tuesday with reductions of €45/tonne – leaving values at €1,185/tonne FD NWE (northwest Europe).

Not all buyers welcomed the decrease, however, as a major HDPE pipe converter explained: “It is difficult to say whether I'm happy about this news or not. Our margins are still squeezed from the upstream, but we will certainly have to pass the reduction on to our consumers now. We will find it difficult to hold any margin back for ourselves so we cannot recover the lost ground.”

Although June propylene contract prices had yet to settle, most of those players canvassed felt that reductions were likely given the downward sentiment on ethylene.

A PP buyer outlined that reductions would be likely in June: “I expect suppliers will start trying to book volume with me in the next few days. They will want to get rid of their stocks now before prices go any lower.”

($1 = €0.71)

For more on PE and PP, visit ICIS chemical intelligence

By: Stephanie Wilson
+44 20 8652 3214

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