Dow targets €100/tonne increase for Europe PE in August

20 July 2011 17:03  [Source: ICIS news]

LONDON (ICIS)--Major polyethylene (PE) producer Dow Chemical plans to target hikes of €100/tonne ($141/tonne) for August business because of poor margins and the need to recover recent losses, a company source said on Wednesday.

“We will target increases of €100/tonne across all grades of PE from 1 August because of increasing production costs,” said the source. “Naphtha prices are back at the same levels we saw in the first quarter of 2011, when PE prices peaked, while cracker margins are under pressure.”

The source added that with demand improving in China, competitive imports from Asia and the Middle East that had been weighing heavily on European pricing were now being redirected to China.

Therefore European PE spot prices have reached what many consider to be the bottom of the cycle, and buying interest is expected to pick up before possible increases.

Although the source acknowledged that slower demand in August – traditionally the holiday season in Europe – would not support Dow's bid to increase prices, it was argued that current margins are unsustainable.

The source said: “We will see firmer sentiment in Asia over August. There are [approximately] eight crackers going down at a time when demand peaks. That will mean that product from the Middle East will make its way into Asia, then there is a maintenance season in Europe in September, when demand will be picking up.

“Our stocks are already at low levels, and we will fight to push this increase through. I suspect we will not be the only producer looking to raise prices next month.”

Among other sellers, expectations for August were unclear given the uncertainty in the upstream ethylene market, but many doubted that a €100/tonne increase would be possible.

“Perhaps plus €20/tonne or something like that will be possible. The demand is good, but that is because the prices are still low,” said one seller.

A trader said: “Consumers have more or less bought what they need for July and August already, and there seems to be plenty of material still available, with some producers still selling at low numbers.

“Let's hope I am wrong and demand stays as it is, but if I had to bet, I’d say August will be slow and September will be weak.”

Buyers were opposed to the €100/tonne target, with some expecting further reductions in August.

One said: “There are rumours ethylene could go down again in August. It does depend on what ethylene does, but demand will be slow and producers are nervous to place the extra volumes into the market in case it disrupts the market. We expect minus €20–30/tonne could be possible.”  

($1 = €0.71)

For more on Dow Chemical visit ICIS company intelligence
For more on PE visit ICIS chemical intelligence


By: Stephanie Wilson
+44 20 8652 3214



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