FocusEurope PE, PP buyers set to face further price increases

02 April 2012 12:19  [Source: ICIS news]

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 priceLONDON (ICIS)--European polyethylene (PE) and polypropylene (PP) buyers are set to face further price hikes as producers look to cover higher costs and improve their margins in April, sources said on Monday.

PE and PP prices have increased steeply since the beginning of 2012, rising by more than 30% in some cases.

Dow Chemical has already announced a €150/tonne ($200/tonne) hike for April PE, well above the €40/tonne rise in the April ethylene contract, while other producers are aiming for a €30-50/tonne increase above the new monomer contract increases.

The April ethylene monomer contract rose by €40/tonne to settle at €1,345/tonne FD (free delivered) NWE (northwest Europe), and the April propylene contract increased by €50/tonne, at €1,245/tonne FD NWE.

Buyers are less convinced prices will rise significantly in April compared with February and March, when increases seemed inevitable because of the tight availability of product, brought about mainly by cutbacks at the cracker and polymer level because of high upstream costs.

“Pre-buying in quarter one has left buyers with stocks, and April is a short working month,” said one observer.

“Consumption in April will be lower,” said a producer. “Demand for most applications is down, all except for personal care. Even food packaging has not been as strong.”

But for producers, the quest for better margins remains paramount.

“We have seen [PE] prises increasing since January but we have always been behind with our cost situation ... We have simply been playing catch-up,” said one.

Brent crude oil prices were trading at $122.79/bbl on Monday morning, but it euro terms, they have been at a record high, even higher than in 2008, when prices briefly touched $147/bbl. Naphtha has moved up alongside crude oil prices and was trading at $1,045-1,053/tonne CIF (cost insurance freight) NWE (northwest Europe).

Low density polyethylene (LDPE) prices have increased to €1,400-1,450/tonne FD on a net basis, from a low of just above €1,000/tonne FD NWE for spot volumes in December 2011. Contracted volumes were sold at higher prices at the time.

In spite of producers complaining of poor margins, the momentum of the PE and PP markets is now losing pace as there will be fewer working days in April than in March and some buyers have built up inventory. Some buyers feel that they will not be able to get away with anything less than an increase in the monomer contracts, particularly for some grades of PE and PP, which are tighter than others.

LDPE availability is tight, and production problems coupled with good seasonal demand mean that buyers fear they will have to pay more.

“There is a lack of availability,” said one large LDPE buyer. “Converters will put up more resistance, but nobody is knocking on our door trying to sell us more.

“They are not prepared to compromise on the feedstock number.”

Discussions are likely to be more protracted than in February and March when buyers had to pay up quickly if they wanted material.

PE and PP are used extensively in the food packaging sector, while PP is also used in the automotive industry and PE in the agricultural sector.

($1 = €0.75)

By: Linda Naylor
+44 20 8652 3214

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