Europe polyethylene pipe market too weak to limit July losses

07 July 2011 23:59  [Source: ICIS news]

LONDON (ICIS)--European polyethylene (PE) pipe grade prices have sustained losses of €90-100/tonne ($130-145/tonne) for July contract business, as low demand and ample availability weighed heavily on the market, players said on Thursday.

Despite the early stage of the month, at least two producers confirmed that reductions of €100/tone have been passed through to buyers – surpassing the upstream ethylene decrease of €95/tonne – in what many consider to be a bid to tempt buyers back into the market.

Although numerous sellers maintain that they will look to limit the losses where they can, they acknowledge that it will be extremely challenging to recoup any margin on black high density polyethylene (HDPE) 100 and 80 material, given the length of product and weak demand in the market.  

Demand – which was already at low levels owing to the downturn in construction activity – has weakened further on the recent bearish sentiment that has kept buyers on the sidelines of the market.

“This has been the worst year for pipe demand and prices that I can recall,” a producer said, before adding: “Sellers have been very aggressive since May and demand has suffered because of it.”

The movement leaves black HDPE 100 and 80 gross prices at €1,300-1,325/tonne and €1,300-1,340/tonne FD (free delivered) NWE (northwest Europe) respectively, according to ICIS. These prices are subject to discounts and rebates. 

Among consumers, early settlements are also reported with three-digit reductions, with many anticipating that decreases of €110-120/tonne should be possible by the end of the month.  

A large PE pipe resin buyer outlined: “We already got minus-€100/tonne from the majority of our suppliers this month and we expect further reductions at the end of July, and for August.”

However, with margins throughout the HDPE chain extremely thin – particularly in the pipe grade resin market – several producers reiterate that they cannot afford to offer further reductions.

One manufacturer was adamant: “We will offer minus-€95/tonne and no more, even if it means we have to give up volumes. We have to rebuild margin.”

The source went on to explain: “At the start of the year, ethylene prices were going up and PE pipe prices were not keeping pace. When [ethylene prices] started coming down, PE pipe prices fell quicker. There is no profit in this industry.”  

Nevertheless, with cracker margins still at healthy levels, producers remain reluctant to pull back operating rates, according to several sources, who say that stocks of HDPE are building at a time when inventories should be dwindling.

A producer explained: “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.”

The source added: “In my opinion, the €95/tonne ethylene reduction did not turn the tide in the market. Imports are still competitive and exports are impossible. Already there is speculation that the August ethylene contract will go down, so this situation is likely to continue into August.”

($1 = €0.69)

For more on HDPE pipe, visit ICIS chemical intelligence

By: Stephanie Wilson
+44 20 8652 3214

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