FocusEurope August PE buyers cautious as producers eye increases

08 August 2011 11:28  [Source: ICIS news]

PE is used in food packagingLONDON (ICIS)--Polyethylene (PE) buyers in Europe are in no hurry to settle prices for August as upstream volatility continues to affect crude oil pricing and demand remains soft, in spite of bullish talk from producers that are targeting price increases, several said on Monday.

“I prefer to be cautious,” said one southern European buyer. “July and August are normally strong months for us but we have closed two lines this month. Even if we drop the price, we don’t sell.”

Food packaging, which has so far weathered the storm of poor demand, is beginning to be affected. UK-based Premier Foods reported an unprecedented slump in half-year profits earlier this month, blaming “a combination of reduced consumer spending and significant raw-material inflation”.

The southern European buyer of PE for food packaging said that most of its manufacturing was for distribution within Europe as a whole, and that all regions had shown a drop in demand.

Another buyer told the same story.

“Producers and consumers alike will have to start to deal with slow demand,” the second buyer said.

Some PE producers in Europe made public price-hike announcements, with Dow looking for an increase of €100/tonne ($143/tonne) in August. Others talked of plus €50/tonne.

However, the decrease in crude oil prices following last week’s stock market falls has led to massive uncertainty in markets globally. Producers had earlier been confident that the September ethylene contract would increase again, following its €30/tonne rise in August, but buyers are by no means certain that this will be the case.

Brent crude oil prices have fallen from $119/bbl on 1 August to $107.07/bbl on the morning of Monday 8 August.

“Even if ethylene does go up in September, I am not going to be buying more PE in August. I aim to keep my stocks low, and if I have to pay more in September, I will,” said one of the buyers.

PE prices have fallen significantly in the past three months, with low density polyethylene (LDPE) losing as much as €250/tonne. Net spot levels are now trading at €1,120–1,170/tonne FD (free delivered) NWE (northwest Europe).

Many buyers are delaying settling prices for the month unless they are offered a rollover from July.

“I will wait until I get back from holiday before I start talking about August prices,” said a linear low density polyethylene (LLDPE) buyer. I’m fairly confident of getting a rollover.”

PE producers did not agree.

“Prices went to a stupid level in July,” said one major PE producer. “We have poor spreads between PE and ethylene. There is no place to absorb the recent increase in ethylene. Prices have to go up.”

With stock markets still volatile and crude prices still falling, discussions for August PE are expected to be protracted, and the practice of retroactive negotiations in many markets, when prices for the month are only determined on the very last day for material already delivered, is expected to be firmly entrenched.

PE is used in packaging, agricultural film sectors and in the manufacture of household goods.

($1 = €0.70)

For more on PE visit ICIS chemical intelligence

By: Linda Naylor
+44 20 8652 3214

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