FocusEurope PE prices at 22-month lows 'have reached bottom'

18 November 2011 12:14  [Source: ICIS news]

Polyethylene is used in food packagingLONDON (ICIS)--The outlook for polyethylene (PE) demand in Europe remains flat, but many players feel that prices will go no lower than current levels in the near future as the spread between ethylene and PE narrows and crude oil and naphtha prices remain strong, market sources agreed on Friday.

“The cutbacks are not helping yet,” said a major PE producer. “Market demand is very low. We need to continue to produce at low rates and keep pricing stable now. Even at the big accounts there is an acceptance that prices can’t really go much further [down].”

Another major producer said: “We expect December pricing to remain at the same level as in November, and a mild increase in January and February [of] no more than €10/tonne ($14/tonne) or €20/tonne. The eurozone remains very uncertain and we don’t expect this to change much in the short term.”

A trader said: “We see some demand coming in for January now. People generally think that prices have reached the bottom.”

Several sources echoed this sentiment, adding that current levels, at the low end of the spectrum, are unsustainable.

In most spot PE business in Europe at present, prices are lower than the headline ethylene contract price, which stands at €1,095/tonne FD (free delivered) NWE (northwest Europe). This is a gross price, subject to discounts, but the spread between spot low density polyethylene (LDPE) levels – at €1,040/tonne FD NWE, and even below in a couple of extreme cases – and ethylene is clearly not sustainable long term.

LDPE and linear low density C4 low-end commodity prices are at €1,040/tonne FD NWE and €1,000/tonne FD NWE respectively – their lowest levels for 22 months.

Cutbacks will continue, but November inventory levels have remained broadly in line with those in October, a big disappointment for European producers who had hoped for some depletion in stocks by now. This is a result of the slump in PE demand in Europe at present.

"What worries me at the moment is money supply," said a third major PE producer. "PE availablity will become restricted and prices will go up, but I am worried that our customers just won't be able to pay."

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

($1 = €0.74)

By: Linda Naylor
+44 20 8652 3214

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