09 August 2012 12:25 [Source: ICIS news]
LONDON (ICIS)--European polyethylene (PE) spot prices have surged by at least 25% since the end of June, and monthly buyers are faced with hikes of up to €200/tonne over July values, sources said on Thursday.
June spot low density polyethylene (LDPE) hit a low of €980/tonne ($1,210/tonne) FD (free delivered) NWE (northwest Europe) on a net basis at the end of June, as sellers rushed to offload product in what looked like a re-run of April and May, when demand weakened mid-month. Lower prices were prompted by the €170/tonne fall in the July ethylene contract price, which brought buyers back to the market in droves.
Days later crude oil and naphtha prices rose sharply, however, and by 4 July producers were withdrawing price reductions of €170/tonne as quickly as they could, but a good portion of business had already been concluded at such a drop for July PE business, and product availability had tightened.
Spot LDPE prices are now trading at €1,260–1,300/tonne FD NWE.
Most producers report an average price drop of €120–145/tonne for July PE monthly business, with only INEOS publicly rejecting a price reduction of more than €70/tonne.
The expectation that the August ethylene contract price would rise was realised – it increased by €140/tonne, settling at €1,175/tonne FD NWE. This prompted PE producers to announce increases of up to €200/tonne for August PE and has led to an almost unprecedented period of volatility in the European PE market.
Spot prices have risen fast, with LDPE now trading at €1,260–1,300/tonne, and even higher in some cases, but monthly buyers intend to delay settling August prices.
“I don’t want to pay more than €140/tonne [increase],” said one large buyer.
“I’ll fight like hell to pay no more than the ethylene,” said another buyer.
Others pointed out that markets have seen no fundamental change and that what is happening now is just a stock shift, as converters’ inventories had been very low for months.
“Hopefully everyone will realise nothing has changed,” said yet another buyer. “We’re hoping the market will lose momentum in August, and will delay settling for as long as possible.”
Producers have begun to talk about more increases in September, based on increasing crude oil and naphtha prices, but most sources say it is too early to speculate on this.
Naphtha fell below $700/tonne CIF (cost, insurance and freight) NWE in the week ending 22 June, but by Thursday was trading at $927–929/tonne CIF NWE.
Many PE converters are disgruntled at the level of volatility in the European PE market and complain that it makes business difficult to manage. Some even hanker after the days when ethylene was settled quarterly instead of monthly, but those days are unlikely to return, given upstream movements.
PE is used widely in packaging and agricultural industries.
($1 = €0.81)
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