31 August 2012 13:07 [Source: ICIS news]
By Linda Naylor
LONDON (ICIS)--European polyethylene (PE) and polypropylene (PP) buyers are being faced with sharp September price rises following increases in the ethylene and propylene contracts and producers' intentions to improve margins, several said on Friday.
There have been requests for increases of €175-200/tonne ($219-250/tonne) - and even €250/tonne for PE - for September business, following rises that reached €200/tonne in August.
An initial September ethylene contract settled on Friday at €1,300/tonne FD (free delivered) NWE (northwest Europe), up by €125/tonne from its August level.
An initial propylene contract settled at €1,160/tonne FD NWE, up €105/tonne from August.
These upstream hikes had been widely expected and polymer producers intend to add some margin to these costs, as they say that cracker margins remain untenable.
“When cracker margins are so low, polymer has to make money,” said one PE producer.
Producers’ margins have been under heavy pressure following the collapse and subsequent swift rebound in naphtha prices this year. During the week ending 22 June, naphtha traded at a low of €683/tonne CIF (cost insurance freight) NWE, but on Friday was back up to $966-968/tonne CIF NWE.
Meanwhile PE and PP prices have fallen and moved back up above end-June levels, and now look likely to increase again by a very substantial amount in September.
Many converters acknowledge that producers need to improve margins on their polymer production but they are finding it difficult to manage the level of volatility seen in 2012. Volatility in the PE and PP markets this year has been unprecedented.
“Prices are going up far too quickly,” said a large PE buyer. “It will fall flat on its face by October.”
“If they really push prices up by another €200/tonne in September, they’ll crash by October,” said a medium-sized PE buyer.
“I can see this putting a sharp brake on demand,” said another large buyer of both PE and PP. “We are already being offered imports.”
August low density polyethylene (LDPE) monthly prices concluded in the high €1,200s/tonne FD (free delivered) NWE (northwest Europe), on a net basis, but spot levels have already moved up to €1,400/tonne FD NWE, anticipating the hike in September pricing.
PP homopolymer spot prices have jumped to €1,300/tonne FD NWE, from a low of €1,000/tonne FD NWE only at the end of June. LDPE prices were at €980/tonne FD NWE at the same time.
Most sources agree that producers will be supported in their September aims by the supply/demand balance in September.
Some PE production is down unplanned, and while stocks at the converter are not as low as they were, they still need to buy.
Many sources are beginning to speculate on how the current pricing policy will affect demand in September and beyond, as economies globally remain fragile, with Europe particularly poor.
“By October we’ll see dead demand and the return of imports,” said one player.
The question of imports is not that simple, according to many sources, however.
“Traders won’t want to risk importing,” said a PE producer. “If they are that unsure of demand in quarter four, they just won’t risk it.”
“I’ve been offered some C6 LLDPE [linear low density polyethylene] for arrival end October but I’m not sure whether to take it up,” said a buyer. “When it falls it will go quickly and it has gone up so quickly that I can see it collapsing again by October.”
Two cases of force majeure on high density polyethylene (HDPE), one from Basell Orlen Polyolefins from its Plock facility in Poland, and a second from Total out of its Antwerp, Belgium, plant, have tightened some HDPE grades substantially.
Delivery problems form the Middle East have led to tightness in the C4 LLDPE sector, and cracker outages, both planned and unplanned, have led to a lack of length in PE availability across the board, making September increases look increasingly inevitable.
($1 = €0.80)
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