FocusEurope PE prices soar, buyers remaining cautious

10 September 2012 12:10  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--Polyethylene (PE) buyers in Europe are paying increases of around 8% for their material in September, the like of which have rarely been seen in the past, but many remain cautious and expect the current upward trend to turn in a matter of weeks, several sources said on Monday.

“We have a very strong order load, crackers are at reduced rates, margins are bad, we have to get prices up,” said one PE producer who sees business at €180-220/tonne ($231-282/tonne) above that in August.

Buyers remain cautious but acknowledge it is difficult to avoid increases this month.

“We just have to pay,” said one buyer.

“These are draconian increases and will be very difficult to pass on to our customers,” said another.

Some buyers, having just returned from their holidays, were shocked to find prices had risen so sharply since their last purchase in July.

“When I went away at the end of July, I was offered material below €1,200/tonne; this week I have been offered the same product at €1,450/tonne,” said a low density polyethylene (LDPE) spot buyer. Prices are on FD (free delivered) NWE (northwest Europe) basis.

“These prices must attract imports,” said another buyer.

The gap between Asian PE prices and European levels has increased sharply over the past two months, but for the moment imports remain scarce. The uncertainty of how long the current uptrend can last leads to hesitation from traders as material bought today could arrive when prices begin to fall.

Low density polyethylene (LDPE) is trading as low as $1,240/tonne CFR (cost and freight) China, while buyers in Europe are hard pushed to find LDPE spot prices below €1,450/tonne FD (free delivered). $1,240/tonne CFR equates to €967/tonne at Monday’s exchange rate.

While few players expect much material to be offered from Asia to Europe, such a price difference could attract Middle Eastern sellers to Europe, rather than to Asia.

In the midst of this undeniable upward trend, buyers expect prices to come down by November at the latest and converters question how long high prices can be sustained under such poor economic circumstances as those that are prevalent in Europe.

Producers are confident that prices cannot collapse while their own inventories are under control and naphtha prices remain high. It is the rise in upstream naphtha prices that has led to the heavy increases in the PE market, and producers aim to retain any margin improvement they achieve in September.

Naphtha was trading at $1,002-1,005/tonne CIF (cost insurance freight) NWE on Monday morning, showing no signs of softening. During the week ending 22 June, it had slumped to a low of $683/tonne CIF NWE.

“We can’t let prices fall when there is no margin,” said another producer. “In April and May margins were good, but now, even with this September increase, margins are still bad. If demand falls then we will have to cut back output.”

“The only factor that can change the equation is oil,” said another.

Monthly price discussions are expected to continue throughout September, with much LDPE and linear low density polyethylene (LLDPE) settling only at the end of the month.

High density polyethylene (HDPE) buyers are expected to be under particular pressure, as three cases of force majeure in Europe curtail availability.

INEOS sent out letters to its customers informing them of restrictions from its Lavera plant in France on 5 September. A fire in the extruder on Friday 31 August forced an emergency shutdown at the site. The company expects it will take weeks to repair safely. Injection grades are most affected.

INEOS is also due for a significant maintenance programme at its Lavera site as the cracker will go down for an eight-week planned maintenance shutdown in October and November.

Total Petrochemicals declared force majeure on several bimodal HDPE grades from its plant in Antwerp, Belgium, in a letter to its customers dated 29 August. Grades most affected are thought to be HDPE blowmoulding and pipe grades.

Basell Orlen Polyolefins declared force majeure on some HDPE grades from its 320,000 tonne/year plant in Plock, Poland, during the week beginning 20 August.

At present, many HDPE buyers say they have not been faced with any shortages but some sources expect availability to tighten as the restrictions take hold.

Spot prices of all HDPE grades are now reaching the €1,450/tonne FD NWE mark. At the end of July, HDPE spot blowmoulding was still available at below €1,200/tonne FD NWE.

Producers can see no end to the high prices traded in Europe at present, simply because naphtha, their principal feedstock, remains high. Buyers expect the current bull-run to lose momentum as fundamental demand is weak and not expected to improve in the short term.

PE is used widely in packaging and agricultural sectors.

($1 = €0.78)

By: Linda Naylor
+44 20 8652 3214

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