Europe PE spot prices fall on cheaper imports, weak demand

03 June 2011 16:04  [Source: ICIS news]

LONDON (ICIS)--European polyethylene (PE) spot prices have been under further pressure this week, as a steady flow of competitively priced imports and falling raw material costs, coupled with numerous public holidays across Europe, weakened demand, market sources said on Friday.

The lack of activity in the spot market led to panic-selling, as sellers reacted to slow demand by slashing prices to try and move stock ahead of further anticipated price falls.

The pressure on prices is most apparent in the low density polyethylene (LDPE) market, which is now oversupplied. LDPE spot prices have fallen by €180200/tonne ($261290/tonne), or 13%, since early April.

ICIS assessed LDPE spot prices at €1,2801,350/tonne FD (free delivered) NWE (northwest Europe). 

“Its getting very scary on LDPE,” said a trader. “We were able to sell at €1,330/tonne on [31 May], but today [Friday] we struggle to sell above €1,280/tonne FD. I almost feel happy to have closed at this number. We have to just take it and not let the competition snatch the business.”

Similar sentiments have been echoed by several other LDPE sellers, who say that the aggressive selling tactics of a major LDPE producer is the main factor weighing on prices.

Another trader said: “We lost a big order to [the major LDPE producer] today because every offer we make they can afford to undercut by €1020/tonne. We just cannot compete with that.”

Pressure is also building on prices in the linear low density polyethylene (LLDPE) market. High European prices, combined with the favourable exchange rate between the US dollar and the euro, have resulted in aggressive import offers in the market.

Offers from the Middle East of C4-grade product were quoted at €1,220/tonne FD NWE across much of northwest Europe earlier in the week, although the lead time for the material was somewhat unclear.

Although no deals were found at this level and many players said such prices were offered for material available only at the end of June European traders felt the need to slash their own offers to €1,230/tonne FD NWE in a bid to remain competitive.

A trader lamented that in order to move material it had been forced to drop its offers from the range of €1,2601,280/tonne FD, which it had been quoting in the middle of the week, to €1,230/tonne FD by 2 June.

A PE producer said: “We cannot compete with the import prices offered from the Middle East; they have an advantage in their costs and can price the [LLDPE and HDPE] material to sell.”

“Although we never saw the tsunami of material from the Middle East that was expected, every now and then a freak tidal wave will hit Europe’s shores, and this will happen every time China is not buying,” added the producer. 

ICIS assessed C4 LLDPE spot prices down by €30/tonne to €1,2301,270/tonne FD NWE to reflect the trend. The more specialist C6 and C8 grades have held up better as a result of more limited availability.

Import pressure from the Middle East is also building in the high density polyethylene (HDPE) market, although more balanced availability and relatively low prices, compared with the other two grades, mean that HDPE spot prices are holding up slightly better.

Decreases of €1020/tonne were quoted across the HDPE market, depending on the grade, with injection prices coming under the most pressure this week. Several sources said that higher melt-flow and bi-modal grades were shielded by limited output in Europe.

Looking ahead, sources said they expect no short-term relief, as stocks in Asia and Europe are widely agreed to be at high levels, while the majority of European PE producers have yet to lower their operating rates.

A supplier said: “PE margins, according to our calculations, are around €295 over ethylene. European producers are still making great profits and are not going to cut back their operating rates.”

This was also echoed by a trader, who said: “No one knows where the bottom of the market is. But there’s clearly some more room for reduction.”

The trader added: “What is happening is crazy. I never expected prices to go this fast. We have not seen such a market for a long time. There is just no demand and we’re fighting for every truck of PE. I hope it stops soon or it might become really ugly.”

($1 = €0.69)

For more on polyethylene, visit ICIS chemical intelligence

By: Stephanie Wilson
+44 20 8652 3214

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