FocusEurope June PE prices expected to drop in line with ethylene

30 May 2012 12:49  [Source: ICIS news]

By Linda Naylor

Europe June PE to fall in in with ethyleneLONDON (ICIS)--European polyethylene (PE) prices will likely settle down by as much as €120/tonne ($150/tonne) in June, following the fall in the ethylene monomer contract, several producers said on Wednesday.

The June ethylene contract settled at €1,205/tonne FD (free delivered) NWE (northwest Europe), down by €120/tonne, largely because of the sharp drop in naphtha prices since the May ethylene contract was settled.

Naphtha was trading at $822–830/tonne (€658–664/tonne) CIF (cost insurance and freight) NWE on Wednesday morning, while in April the average price was above $1,000/tonne CIF NWE.

“We intend to move PE prices down in line with ethylene,” said one major producer.

“It’s hard to see how the industry can do anything but move down in line with ethylene,” said another.

So far there has been little reaction to this move by buyers, who have accepted hefty hikes in 2012 so far. The upward momentum began in January and gained pace in February and March, but began to lose momentum in April, only to reverse its trend in May as high prices took their toll on demand.

Demand is expected to be key to how successful producers will be in holding PE prices in June. April demand was very weak, as prices had increased by up to 30% since the beginning of the year, and buyers destocked on a grand scale. May demand has been better, but the drop in June pricing is expected to boost volumes.

“Demand is particularly healthy for June,” said a major PE producer. “It remains to be seen what it will be like in the second half of the month, however.”

April and May both demonstrated dramatic demand drops in the second half of the respective months, as lower prices were expected in the following months. Some sellers fear that this may be the case in July.

“We expected ethylene to drop by more than €120/tonne, if it reflected the drop in naphtha pricing,” said one producer.

Many sources feel that the €120/tonne decrease will boost volumes, but there are plans afoot to cut production if demand continues to be poor. Some producers said they are already reducing output.

“There are few opportunities to export at present, so we have already begun a programme of inventory control,” said one of the producers.

A couple of low density polyethylene (LDPE) producers think they will be able to limit the June price decrease to less than the ethylene drop, as product is balanced to tight in some cases, because of production problems in Sweden and Germany and due to earlier permanent cutbacks.

LDPE prices spot prices had already lost the expected ethylene drop by the end of May, and are trading around €1,240–1,250/tonne FD NWE.

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

($1 = €0.80)

By: Linda Naylor
+44 20 8652 3214

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