19 January 2012 11:34 [Source: ICIS news]
(recasts, clarifying lead)
By Linda Naylor
LONDON (ICIS)--European polyethylene (PE) and polypropylene (PP) buyers will face more upward price pressure in February if ethylene and propylene sellers realise the three-digit contract rise they are targeting for the month, market sources said on Thursday.
“I know the market doesn’t like it, and there is nothing positive at the moment, but we have to look at the economics of polyolefins producers at the moment,” said one large European polyolefins producer.
“Everyone who produces based on naphtha is in deep trouble.”
Cracker operators said current margins for them are unsustainable and a sizeable increase will be sought for the February ethylene contract, not only to recover margin lost since the January settlement but also to build in a buffer to protect against any further upswing.
The January ethylene contract settled at €1,120/tonne ($1,436/tonne) FD (free delivered) NWE (northwest Europe), up by €40/tonne from December. The propylene contract was agreed up by €20/tonne at €1,105/tonne FD NWE.
Prices for both PE and PP have risen in January, but results of discussions have left prices well short of increases targeted by some producers.
Borealis had announced a €100/tonne hike, while Dow Chemical talked of plus-€120/tonne. A third producer even spoke of a €140/tonne increase over December.
January increases for PP monthly business have settled €40–50/tonne higher than December, however, while PE prices are up by €50–60/tonne.
Spot prices have risen more sharply, but some net levels in December were very low indeed. Some linear low density polyethylene (LLDPE) spot prices were well below €1,000/tonne FD NWE at some large accounts by the end of 2011, and these buyers are paying increases of more than €60/tonne in January.
There is now evidence of pre-buying ahead of well-flagged increases. Some sellers are careful not to allow buyers to build stock ahead of February, and say they are closing order books because of low inventories.
Spot sellers are already hiking prices, and low density polyethylene (LDPE) net spot prices are now at €1,150–1,160/tonne FD NWE on average – up from €1,040/tonne in extreme cases in December.
PP spot prices have also risen, but increases have been slightly more modest than for PE with prices not falling as low. New spot homopolymer injection PP prices are now at €1,120–1,150/tonne FD NWE, from a minimum of €1,030 /tonne FD NWE in December.
Buyers acknowledge that producers’ margins are low and that they will be facing strong upward pressure in February.
“All this is based on reduced output, not strong demand. How long can they carry on running at these rates?” asked one large buyer.
Some sources are aware that such a strong upward momentum cannot continue for many months – particularly as it is based on reduced output rather than strong demand.
They say that if producers cannot move prices up in January and February, when inventories are low and imports limited because of the weak euro, there is little chance for the rest of 2012, as gloomy economic news continues to make headlines.
PE and PP are used extensively in packaging.
($1 = €0.78)
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