FocusEurope July PE, PP react to stronger crude and naphtha

05 July 2012 11:42  [Source: ICIS news]

Polyethylene is used in the packaging of fruits. (Source: Plastics Europe).LONDON (ICIS)--European polyolefins demand is increasing in July as crude oil and naphtha prices soar, and polyethylene (PE) and polypropylene (PP) buyers believe that prices have reached the bottom of the current cycle, market sources said on Thursday.

“The market is turning,” said a trader.

“We’d like to settle as early as possible this month,” said a large PE buyer, “but we still want to get the full €170/tonne ($213/tonne) monomer decrease.”

Some producers offered an immediate €170/tonne decrease to their buyers, reflecting the drop in both the ethylene and propylene monomer contracts for July, but by Wednesday some producers were making it clear that they would not be relinquishing the full €170/tonne drop on July pricing.

Many buyers have already settled the month at a decrease of €170/tonne, however, bringing monthly prices more in line with spot prices.

There has been a marked difference in spot and monthly prices in recent weeks, and indications are now that monthly prices will lose all, or a major portion of, the €170/tonne monomer drop, while in spot pricing there are signs that the very low prices seen at the end of June are disappearing.

PP and PE prices have collapsed since May, with homopolymer injection prices losing as much as €350/tonne since May, to trade at €1,000/tonne FD (free delivered) NWE (northwest Europe) at the end of June. Low density polyethylene (LDPE) spot prices fell to below €1,000/tonne FD NWE, from €1,400/tonne FD NWE in April.

These decreases were down to the sharp fall in upstream crude and naphtha prices, which have come to a halt and rallied in early July, exerting sharp pressure on producers’ margins.

“We have managed to throw away the whole margin,” said a producer.  

By Thursday morning Brent crude oil had risen above $100/bbl and naphtha was at $797–804/tonne CIF (cost, insurance and freight) NWE. Naphtha traded at an average of above $1,000/tonne CIF NWE throughout April, and slipped below $700/tonne CIF NWE during the week ending on 22 June.

Producer INEOS said that it would limit any price decrease on PE and PP in July to €70/tonne, but several competitors have already given away the €170/tonne drop from the monomer contracts.

For those sellers that do not want to give away the full €170/tonne, export remains a viable option. High crude oil prices have brought buyers back to the market in Asia and also in Europe, but one thing these buyers have in common is that they still want low prices.

“Customers are really confused,” said one producer. “Last week they could buy almost anything they wanted at any price, but low offers have now been withdrawn.”

“Everything has changed since last Friday [29 June],” said another producer. “Many customers still haven’t realised what’s going on.”

Others, however, have.

“We are trying to secure the July price for July and August together,” said one large buyer.

With feedstock costs rising, sellers are being very careful not to sell for both months. Only days ago, however, some sellers were still pushing volumes onto the market at low prices. Both PE and PP spot dipped below €1,000/tonne FD NWE for many grades.

“August is a summer month. If we were talking about increasing prices in a normal month, I would say this might be possible,” said a reseller, “but as it is, I can’t see people paying higher prices next month.”

PE and PP are used widely in the packaging industry, and PE is also used in the agricultural sector. PP is also used in the automotive sector.

($1 = €0.80)

By: Linda Naylor
+44 20 8652 3214

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