High upstream costs stifle Europe polymer demand

11 October 2012 12:05  [Source: ICIS news]

By Linda Naylor

Polypropylene (PP) (image sourced from Sibur)LONDON (ICIS)--High naphtha prices are aggravating already poor polyethylene (PE) and polypropylene (PP) demand in Europe, sources said on Thursday.

“Buyers are proceeding with extreme caution. Demand is very flat and there is no real willingness to buy,” said one PE producer.

Another said: “Demand overall is OK, not more, but even Germany is cooling down now.” 

A PP buyer added: “I’ve got nothing in the warehouse at the moment ... this year has been very difficult to manage.”

Severe price swings in the naphtha market have led to massive volatility in PE and PP markets in 2012, and neither buyers nor sellers want to be saddled with high stocks in case of another downward price move that could heavily affect working capital.

“Everybody has got a lot better at inventory management and I intend to destock” said another buyer.

With prices of PE and PP slipping down from levels close to record highs, players aim to continue to manage stock closely. End-year rebates are now also beginning to come into play as buyers with poor demand will want to reach agreed volumes to benefit from their volume discount.

Low density polyethylene (LDPE) net spot prices have fallen from a high of €1,500/tonne ($1,923/tonne) FD (free delivered) NWE (northwest Europe) in some cases in September, to around €1,350/tonne, while PP homopolymer injection net spot prices have dropped from a high that peaked at €1,350/tonne FD NWE in September, to €1,250/tonne in October.

Producers say these levels cannot decrease further in spite of weak demand and expectations of a price drop in November, as feedstock costs are too high.

On Thursday naphtha traded above $1,000/tonne CIF (cost insurance freight) NWE, to slip back to the high $900s/tonne by late morning.

“This is one of my biggest fears, that naphtha should come back up to this level,” said one of the producers.

Expectations for the fourth quarter remain weak. GDP projections for Europe are poor and some sectors, like the automotive industry, have been hit hard.

Under these conditions, sources expect one of two scenarios: either PE and PP prices fall in the fourth quarter, or production is cut back heavily to accommodate lower demand.

PE and PP are used widely in the packaging and household goods sectors. PP is also used in the automotive sector and PE in the agricultural industry.

($1 = €0.78)

By: Linda Naylor
+44 20 8652 3214

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