Europe PE buying stalls on expectations of lower July prices

14 June 2012 10:45  [Source: ICIS news]

Polyethylene is used in agricultural applicationsLONDON (ICIS)--European polyethylene (PE) buyers are putting purchases on hold over expectations of even lower prices in July following sharp, feedstock-driven decreases in June, sources said on Thursday.

Monthly PE prices have fallen by as much as €150/tonne ($190/tonne), further than the €120/tonne decrease in the June ethylene contract.

Many sources feel that the drop in naphtha pricing has not been reflected in either ethylene or PE, however, and are waiting for a drop in the July ethylene contract which they expect to be transferred directly to July PE pricing.

“We have bought all we need for June now,” said a large buyer. “If anybody wants to sell to me now they will have to offer €50/tonne lower than the lowest price they have in mind.”

Stocks have been very low with converters and early June saw a flurry of buying activity following two weak months in Aril and May.

Players in the PE market are expecting another hefty drop in the ethylene contract for July as feedstock costs have slumped. Naphtha was trading at $720-728/tonne CIF (cost insurance freight) NWE (northwest Europe) on Thursday morning, from an April average well above $1,000/tonne.

“The full naphtha drop has not yet worked its way into PE,” said another buyer. “We expect another big drop in July.”

PE prices have been volatile over recent months. Low density polyethylene (LDPE) prices were moving as low as €1,030/tonne FD (free delivered) NWE in December 2011, reached levels as high as €1,450/tonne in April, to then trade at €1,100/tonne and occasionally below in June.

Precise net LDPE prices are difficult to gauge for the second half of June as buying is so thin. Some producers are now moving product to export markets as industry stocks are rising in Europe. Crackers are still thought to be running at relatively high levels as margins are good, but several producers have begun to consider cutbacks because of weak downstream demand.

Inventories with buyers are low, as any stock in the warehouse will lose value in July.

Some large buyers express concern that a rerun of 2011/2012 could occur by the fourth quarter and complain that such volatility is hard to manage.

“We have to give prices out to our sales people for several months ahead,” said one of the converters. “It is very hard to do that in the current climate.”

Another buyer said: “We just have to live with this situation and get the lowest prices we can while they are available. It might all change by September/October.”

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

($1 = €0.79)

By: Linda Naylor
+44 20 8652 3214

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