FocusNext phase in Europe PE pipe market to be driven by demand

26 April 2012 14:42  [Source: ICIS news]

LONDON (ICIS)--The depth of possible falls in European polyethylene (PE) pipe prices will depend heavily on demand, following the end of a phase that saw rises driven primarily by low producer margins and tight supply, producers and converters said on Thursday.

"Looking at cyclical influences, we would be entering a decline for three months. How deeply we fall will depend on the final market demand. It will finally come down to that – is there a real demand in the market?" said a PE pipe producer.

PE pipe prices are touted to have reached the top of the cycle, having moved up by 24% on average for PE 100 pipe grade and by 25% for PE 80 pipe grade in the first quarter of 2012. Prices increased further in April, by a modest €30–40/tonne.

"Historically, the steeper the incline, the steeper the decline. Looking at oil, I will be quite surprised if we don't see a reduction in May. [But] it could be a slower softening, depending on demand," said a PE pipe buyer.

Both producers and buyers agree that producer margins have now improved because of the rising prices. Additionally, PE pipe producer inventory levels have risen, putting the onus back on demand.

"Everybody who has intelligence is realising that cracker margins are high, most PE pipe production is integrated, except one producer. They can afford to go for a policy of integrated margins on naphtha. Even if the ethylene [contract price] is reduced [in May], the cracker margins will be sky high. So pipe producers, if they want to move volumes, they will be more flexible," said the producer.

Producers first started taking a flexible approach to pricing in the second week of April, when demand began to fall.

"In April, suppliers told me demand is abnormally quiet, especially if you see that the high season has started," said a second PE pipe buyer.

The source attributed the quiet demand to high inventory levels among customers.

"Suppliers have plenty of material available," said the buyer, adding that it meant customers are free to choose the cheapest offers in the market.

Converters are seeing a mixed downstream demand in April, in what is traditionally the beginning of the PE pipe season.

There is healthy demand from the downstream utilities sector that accounts for water pipes applications, said the first buyer, adding that the demand from the construction sector is poor. 

"It is true. Some of our customers are doing badly. Others are doing exceptionally well," said a second PE pipe producer, acknowledging the trend.

However, the producer maintained that customers have been destocking in the last few weeks of April because of expectations of a price decrease, and would come back soon enough.

"Because of the destocking, customers need stock. They have delayed orders by two weeks. And we expect the demand to be back in May."

The producer added: "Looking at May, it's a big question mark. The reality is that oil has been weakening, it is correct to have some price correction. [But] I still believe that on supply and demand, we are still balanced, [and] we will not allow ourselves to lose margins."

($1 = €0.76)

By: Cuckoo James
+44 (0) 208 652 3214

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