EPCA '11: Europe polyolefins stabilise but markets remain nervous

02 October 2011 10:29  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--European polyolefins prices have stabilised after a dramatic fall which began in May this year. The October settlement of upstream ethylene, at a rollover, and propylene – which dropped just €10/tonne ($13/tonne) – led to an expectation of continued stability in the short term, in spite of falling prices in Asia, sources said ahead of the EPCA meeting.

The markets remain nervous, however, and gloomy economic news worldwide has done little to support producers’ targets for higher prices for October polyethylene (PE).

Several polypropylene (PP) producers said they intend to roll prices over from September into October, in an effort to improve their margins.

PE margins are widely considered to be worse than PP, which saw some margin improvement in September. This was because PP prices did not fall quite as much as the €37/tonne drop in the September propylene contract price.

At the end of September, PE producers were announcing increases of €50–60/tonne, but buyers have little interest in paying more to producers whose order books are thin when there is no shortage of offers in the market.

“I bought enough in July and August to allow me not to buy at all in October,” said one buyer. “If they insist on increases then I just won’t buy.”

The October ethylene contract settled at a rollover from August this week, at €1,115/tonne FD (free delivered) NWE (northwest Europe). Several players questioned the validity of a rollover when the availability of ethylene is plentiful.

PE producers argue that their margins are non-existent, due to continued strength upstream in crude oil and naphtha markets.

Buyers heard low-priced offers from several sources, however, and found it hard to believe producers will continue to seek increases throughout October.

“I have received emails from people I have never heard of this week, offering me LDPE [low density polyethylene],” said one buyer.

In early September there was a spate of LDPE spot offers below the general market level, and several buyers took advantage of these, leaving them with comfortable stocks.

Offers below €1,100/tonne FD NWE were still heard from western European sources at selected accounts at the end of the month, even as producers discussed increases. Prices had been generally quoted in the mid-€1,100s/tonne FD NWE on a net level.

Linear low density polyethylene (LLDPE) commodity grades were also offered at very low levels in September, below the cost of the ethylene contract in many cases.

Observers said it will take time for this situation to stabilise into a healthy supply/demand balance.

Polypropylene (PP) producers have better margins than their PE counterparts, but here too they are keen not to lose any ground in October and are offering rollover pricing for new business.

Homopolymer injection net prices are around €1,150/tonne FD NWE at present, down €20–30/tonne from the August level.

As with PE, production has been cut back to accommodate low demand, and producers expect to be able to manage the fourth quarter without too much change.

Buyers are cautious throughout Europe, and while the current rash of price hike announcements may urge some buyers to procure material just in case prices move up, hand-to-mouth buying – which has been a feature of the market for some months – is expected to continue.

($1 = €0.75)

For more on polyolefins visit ICIS chemical intelligence

By: Linda Naylor
+44 20 8652 3214

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