12 January 2012 16:07 [Source: ICIS news]
By Linda Naylor
LONDON (ICIS)--Not many players, both buyers and sellers, deny that polyethylene (PE) and polypropylene (PP) prices are higher in January, but few agree on the amount of the increase that will be agreed for monthly pricing, sources said on Thursday.
“There is a lot of speculation and misinformation, which is leading to real confusion in the markets,” said one re-seller, referring to the hefty hikes, up to €140/tonne, announced by some producers. Most buyers said these rises had been adjusted downwards.
The PE market remains more opaque than the PP sector, as retroactive agreements, usually made at the very end of the month, dominate in many areas.
PP prices have begun to settle, and a wide range is reported, with buyers confirming increases of over €40/tonne ($51/tonne). Most buyers and producers have abandoned the idea of publicised, three-digit increases for January, but they intend to seek more in February as margins are weak.
Buyers are loath to pay more than the €20/tonne increase in the January propylene monomer price, but there are so far no reports of freely-negotiated settlements at such a limited increase and several admit that they will probably have to settle higher than the propylene contract.
Producers are pushing for a €40-70/tonne increase over December, and while some say that they have achieved this at some accounts, buyers talk closer to plus-€40-50/tonne.
Discussions in the PP sector are less protracted than for PE, and while business is expected to be settled for January in the coming days, some players expect demand to improve during the second half of the month, as February monomer ideas emerge.
Both the ethylene and propylene contracts are expected to rise in February, which will lead to further upward pressure in PE and PP markets. Producers have managed to balance polymer markets by carefully controlling output, and while sources do not claim that product availability is short, several say that some grades are tight, as production cycles run their course.
“There is certain tightness in selected product, but it is unrealistic to talk of a €100/tonne increase” said a large PP buyer.
A polyeolefins producer said: "We have had the worst margins ever in December ...we simply have to get prices up.”
The expectation of higher prices in the upstream monomer contracts has led to prebuying from some buyers whose stocks are low. Large buyers tend not to be able to store much product ahead, and not all buyers aim to purchase more than necessary in January.
“I will buy only what we can consume,” said a medium-sized buyer, “and in February we will pay the price.”
While monthly pricing remains under discussion for both PE and PP, spot prices are on the rise and the wide gap that had emerged in recent months due to oversupply is now becoming narrower.
Linear low density polyethylene (LLDPE) net prices fell below €1,000/tonne FD (free delivered) NWE (northwest Europe) in some cases in December, but these levels are clearly no longer available in January.
A wide range is still talked for C4 LLDPE, but the lowest confirmed net price this week is €1,060/tonne, with some prices talked well above this, as some buyers envisage higher prices in February and tighter availability in January.
Similarly, PP net homopolymer injection prices are now talked at €1,100-1,120/tonne from the early December level in the mid-€1,000s/tonne.
Sources are fairly clear over expectations in January and February, but visibility beyond that is poor. Projections for 2012 are not good.
“There are two main concerns in Italy at present,” said one market source, “credit and growth. Many converters are very worried over credit availability.”
A PP buyer said price increases were based solely on production cutbacks: “Our volumes are down by 5% and they are only getting prices up by cutting capacity.”
PP production is expected to be cut back further in 2012. LyondellBasell said on Tuesday that it would be closing two old PP production lines with a combined capacity of 90,000 tonnes/year at Wesseling, Germany, by the middle of 2012.
“We continue to focus on reducing costs to maintain our competitive position in Europe,” said Bob Patel, senior vice president for olefins and polyolefins. “We have sufficient capacity to meet the needs of our customers in Europe from our larger scale facilities.”
LyondellBasell produces PP at eight sites in Europe including facilities in Germany, France, Italy, Spain and the United Kingdom.
PP and PE are used extensively in the packaging industry. PE is also used in agriculture and PP in the automotive sector.
($1 = €0.79)
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