FocusWeak PE demand in Europe leads to heavy cutbacks

27 October 2011 14:07  [Source: ICIS news]

LONDON (ICIS)--Polyethylene (PE) demand in Europe is very weak, and producers acknowledge that heavy production cutbacks have to be made to redress the supply/demand balance in spite of PE output already running at reduced rates, several said on Thursday.

Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) are widely considered to be weaker than high density polyethylene (HDPE) non-film grades.

“We are applying drastic measures,” said one PE producer. “I’m not in a hurry to run my plants. There is basically too much material and not enough demand.”

Last week, Dow said that it was making hefty cuts in LDPE output in the Netherlands, Germany and Spain to accommodate poor demand, and crackers in Europe are estimated to be running at 75–80% of capacity. Several players questioned whether this level was low enough to have much of an impact.

Other producers said that they would be making heavier cuts, but for the time being no details have been given.

Low spot LDPE and LLDPE offers are rife in the market.

“People are in a push-volume mode out there,” said a trader.

LDPE spot deals at €1,050/tonne ($1,458/tonne) FD (free delivered) NWE (northwest Europe) are reported at some accounts. This is considered to be the lowest number in Europe at present and is €100/tonne down from its level at the end of August. A very wide range exists throughout Europe, with some sales still done close to €1,200/tonne FD NWE at smaller accounts.

LLDPE offers are reported at similar levels, but in this market, speciality grades are also offered at discounted rates.

Metallocene linear low density polyethylene (MLLDPE) sellers are fighting for market share, and prices below €1,200/tonne FD NWE are reported from southern Europe in particular, down by more than €100/tonne in recent weeks.

Such offers in the MLLDPE sector have led to similar activity in competing markets such as C6 LLDPE and C8 LLDPE, in which many spot offers have been widely reported.

C6 LLDPE would normally command a premium over C4 LLDPE, but at present there is little to differentiate prices of these grades, as converters take advantage of C8 LLDPE spot offers, eating into the C6 LLDPE market. C8 LLDPE film has better properties than C6 LLDPE film.

Some producers are hopeful that the current programme of cutbacks in production will stabilise the PE market in November, but some converters are already reporting special deals into November, and large lots of low-priced spot deals into selected large accounts early in October are likely to affect demand until the end of the year.

HDPE blowmoulding and injection grades are under less pressure than their LDPE and LLDPE counterparts, and while spot prices have been under some downward pressure, prices remain above €1,100/tonne FD NWE, and have not changed significantly in recent weeks.

Neither buyers nor sellers want to end the year with high inventories, and some demand at present is driven only by the will to reach agreed volumes, and hence further rebates by the end of the year.

Some sources speculate that with low inventories across the board, the market could turn quickly, but the spectre of the crisis in the European economy looms large, and also affects buying patterns and production in Asia.

Unusually at this point in the month in European PE discussions, there is little speculation over the November ethylene contract. Sources generally expect a small decrease from its October level, but at present in the PE market the new ethylene contract price is overshadowed by concern over the level of PE demand in Europe.

PE is used widely in the packaging and agricultural sectors.

($1 = €0.72)

For more on PE visit ICIS chemical intelligence

By: Linda Naylor
+44 20 8652 3214

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