22 July 2011 23:59 [Source: ICIS news]
LONDON (ICIS)--The wide disparity between European spot and contract values – coupled with ample availability – has forced polyethylene (PE) and polypropylene (PP) contract prices down by €95–100/tonne ($136–143/tonne) in July, market players said on Friday.
The movements largely surpassed reductions in the upstream ethylene and propylene markets, as extremely low imports and aggressive domestic selling exerted downward pressure on spot offers, pushing them to some of their lowest levels since 2010.
As such, producers were forced to pass decreases above their initial targets, in order to realign contract and spot values and remain competitive against international sellers.
Reductions of €100/tonne were seen across all PP grades and the majority of PE grades, with only high density polyethylene (HDPE) settling with a more marginal fall of €95/tonne, due to extremely thin margins and tight availability.
“HDPE margins are under massive pressure, and it’s killing the value in the market,” one PE producer said. “HDPE did not reach the same levels that other grades did earlier in the year, and production was trimmed back as a result.”
The movement gross left low density polyethylene (LDPE) prices at €1,370–1,390/tonne FD (free delivered) EU (Europe), while homopolymer injection PP dipped to €1,365–1,370/tonne FD EU, according to ICIS.
PP margins came under more pressure than those seen in the PE market, as tighter propylene availability pushed values up to new historical highs earlier in the year. This meant prices sustained large losses, to reach what buyers considered to be more attractive levels, sources explained.
One PP seller said: “It is difficult to sell stocks when buyers feel that prices have further to fall, so we are still under pressure to move volumes.”
However, there was some relief for polyolefins producers, as sentiment in the spot market changed direction mid-month. An upswing in Asian buying interest left several spot players feeling that European prices had approached the bottom of their cycle.
Buyers had anticipated that they would be able to achieve a larger reduction by the end of July, and possibly a further decrease in August. Most have since agreed this was no longer possible, as renewed Chinese buying interest pulled more product from exotic sources into the region, dampening import interest into Europe.
Meanwhile, dwindling cracker margins meant that European polyolefin producers were forced to cut operating rates, leaving stocks of PE and PP reaching a more balanced position towards the end of the month.
As such, many sellers are no longer attempting to compete with the lower offers still available from one or two producers.
One trader said: “We are not under any pressure to sell now. Before, we really had to move the product and were prepared to sell at a loss – but now I would rather sit on stock until the buying activity and prices get better.”
This increasing upstream pressure, rallying Asian prices and dwindling stock availability – coupled with some improved buying interest – has laid the foundations for an anticipated upswing in sentiment, according to several producers, with a few already looking to raise contract prices in August.
Dow has already announced targets of plus €100/tonne across all grades in the coming month, citing growing upstream pressure.
This in turn prompted some traders to attempt increases of €20–50/tonne across spot prices this week, although this was met with limited success.
A trader conceded: “We increased the prices and lost a lot of sales, but some customers who needed to buy prompt material were willing to pay the higher prices. I am not sure whether this means that customers have filled their stocks for July, or whether they are just waiting to see how [the trend] evolves, we will have to see.”
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