Europe PE and PP buyers expecting an end to upward price momentum

19 April 2012 11:14  [Source: ICIS news]

LONDON (ICIS)--Polyethylene (PE) and polypropylene (PP) buyers in Europe are expecting May prices to stabilise or decline – even as they settle April at an increase – as market participants destock and crude oil and naphtha prices fall, sources said on Thursday.

Demand has taken a hit in April, following a series of increases which left polyolefin pricing close to record highs, but PE and PP prices have risen largely in line with monomer hikes.

In the case of PP, prices have increased by up to €50/tonne ($66/tonne) and PE by €40/tonne. Some accounts remain under discussion, with buyers struggling to negotiate a price lower than the monomer hikes, and sellers higher.

Destocking along the chain is affecting demand throughout Europe, with the south reporting lower offtake than the north. The north is, however, also under pressure.

“Our customers are clearly starting to destock – and so are we,” one large polyolefins buyer said. “None of us hold massive stocks anyway, but if our customers reduce their orders by 10% and we reduce our orders by a further 10%, it’s still 20% less polymer required.”

Large buyers cannot usually hold too much stock, as they receive deliveries into silos with limited storage. In the past few months, however, several have said they are ordering more product than they need, in order to be able to force the hand of producers in April or May.

Demand at the beginning of April was very flat, and while it has picked up since, April volumes are considerably lower than expected. Small- and medium-sized buyers are also destocking, and the distribution sector has reported a very slow month.

The fall of Brent crude prices to below $120/bbl (€91/bbl) is leading to speculation over May monomer pricing. Producers have complained that higher feedstock costs have left them with unsustainable margins, but the sharp drop in Brent crude and naphtha prices in recent days must have led to some improvement.

On 3 April Brent crude was above $125/bbl, while at the close of business on Wednesday 15 April it was just below $118/bbl. Naphtha prices have also fallen.

The weakened demand is not just down to destocking, however. Many converters talk of a combination of destocking and lower fundamental demand because of the uncertain economic situation in Europe.

This nervousness and weaker demand has led to some special deals in the April PE and PP markets, as producers have found themselves faced with lower-priced imports. So far these have been limited to certain grades and a limited number of converters, but this is the first time special deals have surfaced for many months, since prices began to climb in January.

PE and PP prices have increased by more than 30% in some cases since the end of 2011. Homopolymer injection net levels are now around €1,350/tonne FD (free delivered) NWE (northwest Europe), while low density polyethylene (LDPE) prices are trading in a range of €1,400–1,450/tonne FD NWE.

Some converters expect May prices to fall.

“I think May prices will come down, but we could really do with some stability. It’s hard enough passing on these increases without prices falling again,” one converter commented.

Monthly monomer pricing – a system that began in January 2009, following a period at the end of 2008’s fourth quarter when polymer prices fell significantly below the quarterly monomer contracts – has led to increased volatility in polymer markets. There have been few months since then when prices have remained stable.

PE and PP are used extensively in the packaging and household goods sectors. PP is also used in the automotive sector.

($1 = €0.76)

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By: Linda Naylor
+44 20 8652 3214



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