FocusUpward trend for Europe polyethylene ends as demand slows

25 April 2012 12:42  [Source: ICIS news]

By Linda Naylor

Polyethylene is used to make plastic bagsLONDON (ICIS)--A strong upward trend in European polyethylene (PE) since the beginning of the year has ended on expectations of a lower May contract price for feedstock ethylene and a slowdown in demand as the economy remains weak and buyers destock, market sources said on Wednesday.

“I expect a drop of €40-50/tonne ($53-66/tonne) in ethylene,” said a producer.

A second producer said: “We are now talking of a possible decrease up to €40/tonne for ethylene in May.”

Any reduction in the ethylene contract price for May will lead to downward pressure in the PE sector, as producers have argued that upstream pressure has forced them to lift PE prices throughout 2012 so far.

The April ethylene contract stands at €1,345/tonne FD (free delivered) NWE (northwest Europe), and ethylene has risen by €265/tonne since January.

PE prices have risen by over €300/tonne over the same period. Low density polyethylene (LDPE) in particular has been strong and prices have increased by €350/tonne since January.

Net LDPE prices are still around €1,400/tonne FD NWE, but PE business is thin at present as the European economy is weak and PE buyers expect a lower ethylene contract in May.

While many buyers expect PE prices to fall in May, there is no expectation of a price crash.

“Quarter four 2011 is fresh in the memories of producers,” said the second producer. “They got really burnt and there has been too much attention to stock control in the last few months for prices to crash.”

LDPE prices in the fourth quarter of 2011 fell below the headline ethylene contract price and producers’ margins were dismal. LDPE spot was at €1,030/tonne FD NWE on a net basis, while the ethylene contract price stood at €1,080/tonne FD NWE on a gross basis.

Demand has suffered during April following a spate of hefty hikes in the PE sector, with southern Europe faring worse than Germany. Figures show a fall in demand in the first quarter of 2012 compared with the same period in 2011.

An increase in imported volumes has also had an effect on the amount of polymer converters buy from European producers.

The May ethylene contract price has not yet been settled and players have speculated over its impact on the PE market.

“We will see no collapse in price,” said the second producer. “People will trim production on both ethylene and PE, to avoid that.”

On the whole, however, the PE market expects to see lower prices in May.

“A rollover would be nice, but we have to be realistic,” said a third producer.

Weak buying interest for commodity PE grades in Asia is also having an effect on sentiment in Europe, although a hike in freight rates from Asia to Europe has prevented much material from taking that route. PE imports into China have fallen sharply this year.

PE is used widely in packaging, the manufacture of household goods and the agricultural sector.

($1 = €0.76)

By: Linda Naylor
+44 20 8652 3214

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