FocusLower Europe PE, PP prices lead to arb opportunities

08 June 2012 10:11  [Source: ICIS news]

By Linda Naylor

Lower Europe polymer prices lead to arb opportunitiesLONDON (ICIS)--Lower polyethylene (PE) and polypropylene (PP) prices in Europe, coupled with a favourable exchange rate, are leading to export opportunities for some sellers who have not had the chance of exporting commodity grades for some time, and they are grabbing them with both hands, sources said on Friday.

“The reality is that we are exporting as much as we can at the moment,” said a PP producer.

A PE producer said: “An export window has opened, based on the cost drop [in naphtha] and the exchange rate."

Another PE producer said: “We now have the possibility to export HD [high density polyethylene] - we haven’t been able to export commodity for a long time, now we have a huge opportunity to export.”

HDPE exports into Turkey from Europe this week were at $1,320/tonne ($1,671/tonne) CFR (cost and freight), as confirmed by a European producer.

HDPE injection spot prices in the European market are trading around €1,200/tonne FD (free delivered) NWE (northwest Europe), but demand in Europe is still slow in spite of an upturn in early June following the very weak months of April and May.

Inventory of PE and PP has built up in Europe, and while June volumes are better than in April and May, most sellers expect to see demand tail off by the second half of the month as players expect a further decrease in July monomer contracts.

“The June monomer [ethylene and propylene] contracts didn’t reflect the drop in naphtha, so we can expect another drop in July. Polymer buyers will expect that to be transferred on to polymer pricing,” said another polymer producer.

Some aggressive selling of PE grades, in particular in Europe, for June leads players to believe that some sellers have already anticipated any July ethylene monomer drop into their current pricing.

Low density polyethylene (LDPE) spot numbers as low as €1,100/tonne FD NWE, albeit at selected creditworthy accounts, are below the headline ethylene contract price of €1,205/tonne FD NWE, and any upturn in naphtha throughout June could make this price look unrepeatable by the end of the month, say some PE players.

Spot PE and PP prices are reported in a very wide price range as sellers with different cost positions take different approaches to the market. Large spot lots have been heard at numbers not dissimilar to those in the fourth quarter of 2011, barely above €1,000/tonne FD NWE, but there is a lot of confusion over which prices are merely bids from hopeful buyers and those that have been settled.

“Even if you do offer lower prices, half the time they [converters] won’t buy,” said the PP producer.

Several players gave their own view of how these markets could pan out in the coming months.

“What I really don’t want to see,” said a large buyer of both PE and PP, “is for prices to crash again in July, producers all start cutting back and exporting to find prices, product getting tight and prices go shooting up again in September/October.”

Another large PP buyer said: “We are buying as little as possible in June. Who will buy now when July will be lower or at least the same price? “

“There is no respite though,” he continued. “Prices could be back up in September. We might as well make hay while the sun shines.”

One major PE producer has been telling its customers to take advantage of the current low pricing as it will no longer be available in July.

The speed of the current price decrease has surprised many, but it has been on the back of a sharp fall in upstream naphtha and weak demand.

In April, the average price for naphtha was above $1,000/tonne CIF NWE, but on Friday morning it was trading at $732-740/tonne CIF NWE. Brent crude oil and naphtha prices rallied this week, but Brent was again trading back down just below $98/bbl on Friday morning.

In November and December 2011, when PE and PP net prices reached lows of just above €1,000/tonne FD NWE, naphtha was in the mid-$800s/tonne CIF NWE.

The dollar/euro exchange rate on Friday morning was €1 = $1.25, while on 30 November 2011, it was at €1 = $1.34.

PE and PP are used widely in the manufacture of household goods and in the packaging industry. PP is used in automotive manufacture and PE in the agricultural sector.

($1 = €0.79)

By: Linda Naylor
+44 20 8652 3214

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