Polymers: Europe polymer buyers nervous over September pricing

27 August 2012 00:00  [Source: ICB]

PE and PP prices undergo volatility as feedstock naphtha remains firm

The few European polyethylene (PE) and polypropylene (PP) buyers who are not on holiday are beginning to get nervous over what might happen to prices in September as naphtha remains firm.


European PE prices have been on the up recently

Copyright: Rex Features

"We have been told by our [PE] suppliers that they will go for more margin improvement in September, on top of whatever happens to ethylene," said one large PE buyer.

PE and PP prices are going through an unprecedented period of volatility, prompted by a turnaround in upstream markets that has added pressure to producers' costs.

In the week ended June 22, naphtha traded at a low of $683/tonne (€553/tonne) CIF (cost insurance freight) NWE (Northwest Europe), leading to a record drop of €170/tonne in the July ethylene and propylene contracts.

This monomer fall led to a surge in PE and PP demand, as buyers with very low stocks came back to the market, leading to a tightening of availability of several PE and PP grades.

Naphtha prices have continued to rise since then, and another increase is widely expected in the September ethylene and propylene monomer contracts, following August hikes of €140/tonne and €120/tonne, respectively.

Late on the morning of August 15, naphtha was trading at $931-933/tonne compared with $832-834/tonne during the week ended July 27.

One monomer seller said that a three-digit increase could not be ruled out for September monomers if naphtha prices continue to firm.

Meanwhile, PE prices decreased by up to €170/tonne in July, with buyers at the end of the month sometimes only benefiting from reductions of €100/tonne, and prices are now bouncing back by up to €200/tonne in August. The movement in PP has been slightly less extreme, but prices have nevertheless been volatile.

Low density polyethylene (LDPE) spot prices are now trading around €1,280-1,320/tonne FD (free delivered) NWE, from a low that dipped below €1,000/tonne FD NWE in the week that ended on June 22, and PP spot prices are now around €1,200-1,250/tonne FD NWE for homopolymer injection, from a low of €1,050/tonne FD NWE at the same time, as assessed by ICIS.

These extreme changes have been hard for polymer converters to handle.

"This volatility has really challenged the conversion industry," said the buyer, "not only from a working capital perspective, but simply being able to access the right price at the right time."

Not all buyers are convinced that September will be higher. "It's all hot air," said a large PP buyer. "The economic climate in August is weak."

Others commented on the poor economic situation as a sign that any upward turn could be short-lived.

"I expect demand to be down by around 10% in 2012," saida distributor.

"It's only a personal feeling but when you look at European economies, they are not bright."

Another large PE buyer said: "This is the widest range of [price] movements I have ever seen and I don't think it has the strength to move into September."

PE and PP producers are reporting good volumes in August, however, and those volumes are better than expected for a holiday month. Inventories with converters are still on the low side.

August pricing is still not settled in many cases, but converters are aware that they will be lucky to get away with just the increase of monomer in August PE pricing.

PE and PP are used widely in the packaging industry and the manufacture of household goods.

PE is also used in the agricultural sector and PP in the automotive industry.

By: Linda Naylor
+44 20 8652 3214

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