FocusEurope PE outlook uncertain, no upturn likely until Q1 2012

25 November 2011 12:21  [Source: ICIS news]

Polyethylene is used in food packagingLONDON (ICIS)--The outlook for polyethylene (PE) in Europe remains uncertain with some grades faring better than others, but many suppliers and buyers see little chance of a significant upturn before well into the first quarter of 2012, sources said on Friday.

“We hope to be able to stabilise the situation in December and work through inventories in January,” said one producer. “We might be able to lift prices slightly in January and February, but that’s not sure right now.”

“It all depends on supply and demand,” said another. “Why are prices so low now? Because there is too much supply, so if we can change that balance, prices will go up.”

The chances of changing the supply/demand balance at present look slim, however.

Production has been cut back in the PE market for several weeks, and currently low density polyethylene (LDPE) looks in better balance than only two weeks ago.

Two large LDPE units in France and Sweden are offline for maintenance, and these have relieved the oversupply seen in early November.

On the other hand, some production that had been heavily reduced is now coming back on line.

US chemical producer Dow’s PE plants are ramping up following several weeks of heavy cutting back, and buyers say they see the effect of this in the linear low density polyethylene (LLDPE) market, which remains the most fiercely contended sector.

Metallocene linear low density polyethylene (MLLDPE) C6 sellers are still competing for market share at low prices, barely above €1,100/tonne ($1,467/tonne) FD (free delivered) NWE (northwest Europe) according to some buyers, leading to shifts in product mix between LLDPE grades.

Price ranges reported by buyers are very wide, however, with MLLDPE C6 talked at €1,120-1,250/tonne.

The high density polyethylene (HDPE) sector is also mixed, and prices and availability of grades depend on the individual producer concerned and its stock position.

Production is cut back and monthly pricing is relatively stable, losing €20-50/tonne, depending on producer and size of buyer, while spot prices have been falling more, with one European HDPE offer heard into Turkey from Europe at €1,000/tonne CFR (cost and freight).

HDPE buyers also report similar levels within Europe, and some feel that current numbers will no longer be valid in January, as crude and naphtha prices remain high.

“I am paying between €1,000/tonne and €1,050/tonne [FD NWE] for my HDPE at the moment, but this offer is limited and I can’t see it still being there in January, especially if production is still cut. For me this looks like destocking, and surely this will be over by then,” said one large buyer with particularly keen prices.

“I can see net prices going up by as much as €50-100/tonne in January.”

HDPE injection spot prices have been decreasing steadily since March, when levels were at €1,320/tonne.

Levels of €1,000/tonne in November are still regarding as exceptionally low, and most players see business at €1,050-1,100/tonne.

An added complication to price discovery at this point in the year is down to end-year rebates, which many converters are keen to capture.

These rebates are subject to converters reaching pre-agreed volumes and affect pricing on total volumes bought throughout the year.

Therefore a headline gross monthly price of €1,300/tonne for European HDPE blowmoulding is subject to the normal monthly discount, depending on the size of buyer and discount agreed, plus the end-year rebate, making the difference between the net monthly price and the spot price of €1,040-1,050/tonne, less than it initially seems.

The current gap between monthly domestic prices and spot levels is unusually high, however, and many buyers are now keen to renegotiate contracts for 2012, aiming to increase the amount of spot purchases into their annual mix wherever possible.

PE is used widely in packaging, household goods and in the agricultural sector.

($1 = €0.75)

For more on polyethylene visit ICIS chemical intelligence

By: Linda Naylor
+44 20 8652 3214

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