Weak Europe PE/PP demand leads to exports, backdoor spot deals

20 October 2011 11:49  [Source: ICIS news]

Polyethylene is used in the packaging of fruits. (Source: Plastics Europe).LONDON (ICIS)--Weak polyethylene (PE) and polypropylene (PP) demand in Europe has led to increased export activity and some low-priced spot deals at prices that many players consider below the current market level, sources said on Thursday.

“European demand is very disappointing, but we hope to reach our projected volumes by selling to export markets,” said one producer.

Targeted markets include Africa and South America, with some volumes also secured to Asia, with low density polyethylene (LDPE) and PP seen as the most commonly traded material at present.

FOB) (free on board) levels below $1,400/tonne (€1,022/tonne) are said to be on offer for PP homopolymer, and levels barely above this level are said to be available for LDPE exports.

Most exports are being done directly from producers, without the involvement of traders, but some say current levels are too low for them, as it would be below variable costs.

European buyers and sellers are reluctant to push for a big price reduction in their monthly discussions with producers, as any price drop will have to be passed on to buyers’ own customers downstream, and would probably not generate increased activity, given the economic situation in Europe at present.

Traders report very slow activity. “It’s hard to say where [PP] prices are at the moment,” said one. “I have been bid below €1,100/tonne [delivered duty paid, DDP], but I can’t do that.”

Homopolymer injection prices have been talked about within a very wide range in Europe this week.

The lowest realistic bids are at €1,050/tonne FD (free delivered) NWE (northwest Europe) for commodity grades said to be coming out of Saudi Arabian production, while offers from some European producers remain as high as €1,300/tonne FD NWE.

Most numbers are still talked at €1,150–1,200/tonne FD NWE for regular business, but demand is very slow.

“Europeans are scared to hold any stock at all,” said a PP producer. “We have had a great month [in] October, but mainly because of exports, not domestic demand.”

One buyer concurred with this view: “We are reducing stock. We expect quarter-four demand to keep on going down. Our October turnover is down by about 10%.”

Similarly in the LDPE sector, low-end deals are rumoured at €1,050/tonne FD NWE, while sales continue not far below €1,200/tonne FD NWE. Again, however, activity is very slow.

High density polyethylene (HDPE) non-film grades are still faring better than their counterparts in the wider PE market.

“A lot depends on the segment, and I wouldn’t say demand is booming, but [the] HDPE blow-moulding and injection sectors are flowing nicely,” said a producer.

Several players say that it is essential for production in Europe to be cut back to avoid disaster. Some producers reported earlier in the month that polymer production was running at 80%, but now there is a question mark over whether that rate is low enough to balance the market.

One trader said:“It’s all well and good exporting, but South America and Africa can’t support the [European] market for ever.”

Demand is so poor at some accounts that some buyers do not expect to reach their volume rebates at the end of the year.

Monthly PP and PE discussions are still underway at many accounts, particularly in the PE sector, and most producers are pushing for a rollover, having abandoned hope of an increase.

Many PE negotiations will not be settled before the end of the month because ofretroactive arrangements in place at large LDPE and linear low density polyethylene (LLDPE) accounts.

($1 = €0.73)

For more on PE, PP, LDPE and LLDPE visit ICIS chemical intelligence

By: Linda Naylor
+44 20 8652 3214

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