Europe PE prices soar but demand suffers in uncertain market

17 September 2012 11:44  [Source: ICIS news]

LONDON (ICIS)--Polyethylene (PE) buyers are being faced with increases of at least 8% in September, and many confirm that they are unable to get hold of product without paying such a hike, several sources said on Monday.

Demand has begun to suffer and the mood remains uncertain.

“We are running at 80% and September is turning out to the quietest month of the year,” said one converter.

“We are seeing demand down on 2011 by 7-8%,” said another converter. “We have not changed our buying pattern in September, though, and are ordering as before.”

“Nothing [prices] is going down,” said a trader, “but I’m not selling as well as I was. I think we are seeing the consequences of the brutality of the price increase now.”

Many converters now believe that the peak of the current pricing cycle has been reached, and they are being careful not to end the month with high stocks.

PE prices have been very volatile in 2012, and increases in August and September have been substantial. Demand was strong in July and August, however, following a three-month period when buying was kept to a minimum by most buyers, and stocks with converters are now back to a more workable level.

Inventories with producers are patchy, with three cases of force majeure in the high density polyethylene (HDPE) sector leading to limited availability in some cases. By the middle of September, some HDPE buyers were not concerned about volumes.

“There are no longer any problems with supply,” said one large HPDE buyer. “We have no difficulty getting hold of material.”

Much seems to depend on individual cases, as buyers with exposure to all three producers with HDPE restrictions in place report tightness.

“It is not easy to get hold of all I need, and if I approach a non-regular supplier, they want much higher prices than I am paying for my contracted volumes,” said another HDPE buyer.

HDPE spot numbers are reported around €1,400-1,450/tonne ($1842-1908/tonne) FD (free delivered) NWE (northwest Europe), but volumes traded are thin and most buyers try to live from stock rather than pay these prices. At the end of June levels were at €1,050-1,100/tonne FD NWE, and buyers have begun to expect them to fall in October.

Producers say it is out of the question that prices will fall next month with naphtha prices where they are at present. On Monday morning, naphtha was at $991-999/tonne CIF (cost insurance freight) NWE.

“There are a number of conflicting signals in the market but there is potential for monomer to increase in October,” said a producer.

Some sellers talked of the possibility of an increase of up to €50/tonne for the October ethylene monomer contract but PE buyers ruled out the possibility of another increase in October.

“Even if ethylene goes up, it will be very difficult for them to increase PE next month,” said one of the buyers.

Fourth-quarter demand is not expected to be strong, as all economic indicators point to continued weakness in Europe, and high prices are expected to attract imports.

With last week’s $40/tonne rise in Hong Kong LDPE, to $1,380-1,450/tonne FD NWE, and the dip in the value of the dollar, arbitrage opportunities are still there, but expectations of a weak fourth quarter may hold back potential importers.

Low density polyethylene (LDPE) net prices have already slipped a little from their high above €1,450/tonne FD NWE, as smaller sellers sometimes offer €1,400/tonne FD NWE in a move to attract buyers.

Against such a backdrop, buyers fear that they will not be able to pass on the hefty hikes they have taken in recent weeks, and producers fear that they will not be able to produce with enough margin to make business sustainable.

“We are really concerned,” said one large PE producer, “not only for ourselves, but for our customers.”

($1 = €0.76)

By: Linda Naylor
+44 20 8652 3214

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