01 March 2012 11:11 [Source: ICIS news]
LONDON (ICIS)--Polyethylene (PE) prices in Europe are approaching previous record high levels as producers target increases of €150/tonne ($200/tonne) following the €86/tonne increase in the March ethylene contract price, sources said on Thursday.
The March ethylene contract price rose to €1,305/tonne FD (free delivered) NWE (northwest Europe).
“It really seems to be take it or leave it for March,” said a large PE buyer, commenting on initial March offers.
Low density polyethylene (LDPE) spot prices are now offered at €1,480–1,500/tonne FD NWE on a net basis. LDPE net prices reached €1,500/tonne FD NWE in March 2011, prior to falling steadily throughout the year, but the highest-ever recorded price range for LDPE was €1,500–1,530/tonne FD NWE in July 2008, when Brent crude oil hit a record high of $148/bbl.
PE producers point out that the current crude oil price of around $125/bbl is higher than in July 2008 in euro terms, as the euro has weakened against the US dollar. As both crude oil and naphtha trade in dollars, this has left producers’ margins weak.
European PE prices in 2012 have already risen by more than 20%, and the new proposed hikes would take the amount of increase beyond 30% if implemented. Most sources see little chance of being able to buy at former levels.
However, higher prices will inevitably attract imports, and there are already reports that LDPE suppliers in the Middle East are cutting LDPE allocation to local markets to send material to Europe, leading to a jump in LDPE prices there.
Asian markets remain flat, and Middle Eastern volumes are expected to move towards Europe, where prices are increasingly attractive.
PE tightness in Europe is based on production problems and cutbacks, ethylene production hiccups that are affecting PE output, and the need for producers to improve depleted margins.
“We are seeing the best demand in years,” said one major PE producer. Several production problems on ethylene and PE in Europe have limited availability, particularly of LDPE and linear low density polyethylene (LLDPE), and producers are very confident of achieving big hikes in these sectors in particular.
The European market situation is in stark contrast to Asia, where prices have been languishing, confounding expectations of an upturn after Lunar New Year holidays.
“Asia is still flat, that’s true,” said the producer, “but their economics are the same as in Europe, so prices will have to move up.”
Asian LDPE prices are trading around $1,350–1,400/tonne CFR (cost and freight). The gap is now becoming so wide that cargoes are said to be being diverted towards Europe, leading many in the European market to expect the current strong upward momentum to slow down in April or May.
“March is a pretty foregone conclusion,” said another PE buyer. “If you want the material you have to pay this price. I can see this coming to an end in April though. I am buying more than I need and I am sure I am not the only one doing this.”
PE is used widely in the packaging sector. It is also used in agriculture, where the season is now taking off.
($1 = €0.75)
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