20 January 2012 11:51 [Source: ICIS news]
LONDON (ICIS)--Polimeri Europa has closed its European polyethylene (PE) order books for January as buyers flock to the market to get hold of more material ahead of an almost certain hefty price hike in February, a source at the Italian major producer said on Friday.
“We can’t allow pre-buying in a market where prices will be up sharply next month. The current spread between naphtha and PE is absolutely unsustainable,” said the source.
The market uncertainty of the fourth quarter of 2011, when spot PE prices were done at selected accounts well below the ethylene contract price, still holds for the long-term outlook, but there is now some clarity for the first two months of 2012.
The January ethylene contract price rose by €40/tonne ($51/tonne), leading to increases of around €50/tonne in the early January PE market.
Expectations are now for a much bigger hike in the February ethylene contract, with PE producers expecting a three-digit increase next month.
They will inevitably attempt to recover this in their own PE market, as crude oil and naphtha prices have continued to exert heavy upward pressure on their own costs.
Cutbacks in PE production across the board mean no surplus of material and attempts to pre-buy all grades of PE are now being thwarted by producers whose costs continue to rise and are expected to go up further in February.
Traders also confirm a high level of activity.
“We can really cherry pick our customers at the moment,” said one, whose sales prices have increased sharply since the beginning of January.
Low density polyethylene (LDPE) spot prices fell as low as €1,030/tonne FD (free delivered) NWE (northwest Europe) in the fourth quarter of 2011, and commodity linear low density polyethylene (LLDPE) C4 was sold below €1,000/tonne FD NWE at selected accounts.
Spot LDPE is now at €1,150-1,160/tonne FD NWE on average, but sellers are now withdrawing from the market at this level, aiming to keep their powder dry for February.
Some sellers are trying their luck at €1,200/tonne FD NWE on a net basis at smaller accounts, and say that they have achieved success. LLDPE C4 net spot prices are also higher, at levels approaching the LDPE level.
Most PE production remains at reduced rates in Europe, as demand has been flat in recent weeks, leaving producers with low inventories.
PE is used widely in the packaging and agricultural industries.
($1 = €0.77)
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