Europe polymers markets expected to sustain falls in July

07 July 2011 11:52  [Source: ICIS news]

From Hydro PolymerLONDON (ICIS)--The European polymers markets will be too weak to limit losses in July, with industry players anticipating total reductions of around €100/tonne ($145/tonne) in both polyethylene (PE) and polypropylene (PP) contract prices, sources said on Thursday. 

Low demand and ample availability – coupled with a wide disparity between contract and spot values – looks likely to weigh on contract prices in July, as market players agree that it will be difficult to limit reductions in line with upstream ethylene and propylene movements.

Players were slow to react to the €95/tonne ethylene and €75/tonne propylene reductions, with no clear offers nominated for July business in either the PE or PP markets, as yet.

While numerous sellers say they will look to limit losses where they can, they acknowledge that it will be extremely challenging to recoup any margin across PE or PP values in July, given the length in the market.

“For July, we are still not decided on our pricing. Obviously we will try to limit the reduction in line with the monomer decrease, but there is plenty of material on the market, and the gap between the spot and contract values is too wide,” said a PE producer, before adding: “We are not overly optimistic.”

Already, at least one manufacturer was reportedly offering reductions of €130/tonne on low density polyethylene (LDPE) contract prices – which is still widely considered to be the weakest of the PE grades.

Buyers, meanwhile, anticipate an even larger reduction will be possible by the end of the month, given that spot prices continue to trend down to the €1,100/tonne FD (free delivered) NWE (northwest Europe) mark.

A buyer said: “We have already received offers with reductions of €100/tonne for July, and this is the starting point of negotiations – we should be able to get more by the end of the month because the holiday season is coming up and no one wants to end with high stocks.”

A similar sentiment is echoed in the linear low density polyethylene (LLDPE) market, where butene spot prices are also close to €1,100/tonne FD NWE, mainly due to import pressure. This is weighing heavily on contract values of butene, hexene and octene grades.

Indeed, numerous LLDPE producers are already conceding that they will be forced to pass the full €95/tonne ethylene reduction downstream in July, while the reduction on the butene grade could be above €100/tonne.

An LLDPE producer added: “In June we saw customers reduce their contract volumes in favour of spot – and this will continue while the gap between the two is so wide.”

Import pressure and a growing disparity between spot and contract values also threatens to force high density polyethylene (HDPE) prices down considerably, as both film and blow moulding spot prices edged towards €1,100/tonne FD NWE.

However, profitability throughout the HDPE chain is currently at a low level, making it necessary for producers to avoid further losses in July, according to sources. Many are adamant that they will not offer reductions beyond €95/tonne as a result.

One HDPE seller said: “We are looking to limit the reduction to minus €70/tonne, but it might be closer to €95/tonne in the film and blow moulding markets, because these are under more pressure from imports.”

It appears that this argument alone will not be enough to limit reductions, however, as competition among sellers was already fierce, with one already offering the full €95/tonne at this early stage in the month.

Several buyers were expecting a three-digit reduction, with ideas pegged between minus €100–120/tonne.

Meanwhile, July PP contract prices are under similar pressure, as aggressive selling from both domestic and foreign suppliers – coupled with growing inventories and a wide disparity between spot and contract values – threatened to push values down by €100/tonne.

A PP producer said: “We will try to follow the propylene development, but the pressure on the more standard grades is very clear. There are import offers in the market that we can not compete with, and stocks are at high levels – on certain grades they are comparable to 2008 levels.”

This was echoed across both the PE and PP markets, with at least two sellers saying that inventories of two-to-three months had built up for certain grades, as cracker margins are still at healthy levels, making producers reluctant to pull back operating rates.

A PE producer added: “The holiday season is approaching, and there will be very little demand over August. No one wants to go into the summer with high stocks, so there will be more aggressive selling in weeks to come.”

However, with the Chinese polymer markets showing some signs of rebounding this week, and upstream crude and naphtha costs on the rise, cracker margins were seeing some erosion.

As such, a more optimistic sentiment was emerging among an increasing number of PE and PP sellers, who felt that Europe spot prices were close to touching their bottom value and would soon rebound, as competitive imports would be redirected to Asia.

Several PE and PP traders said that they were no longer willing to sell at a loss, and were beginning to hold on to current stocks in anticipation of the upswing in spot values.

A PE manufacturer speculated: “Spot prices will rebound very quickly and contract values will not be far behind. We expect sharp upward movement in September [PE contract prices], as turnarounds over summer will tighten up the market.”

($1 = €0.70)

By: Stephanie Wilson
+44 20 8652 3214

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