19 October 2012 10:30 [Source: ICIS news]
By Linda Naylor
LONDON (ICIS)--Polyethylene (PE) and polypropylene (PP) buyers and sellers in Europe are approaching October business with extreme caution as naphtha prices remain high but weak demand puts some sellers under pressure on certain grades, sources said on Friday.
“Orders are coming in at a very low level,” said a major producer.
A large buyer said: “What we’re seeing now is real demand, after stocking and destocking earlier this year, and it’s not good.”
Producers had attempted to limit decreases to those done in the upstream monomer contracts for October, but they have had difficulty doing business at only €10/tonne ($13/tonne) lower in PE and €20/tonne in PP this month. Some grades are less affected than others, however.
Low density polyethylene (LDPE) is the PE grade that is widely considered to be the weakest, with supply outstripping demand. Not all producers have high stocks, though, and a wide spread of prices and approaches are in the market for October so far.
Spot numbers have fallen from a high of €1,400/tonne FD (free delivered) NWE (northwest Europe) to below €1,300/tonne in recent days, and some buyers say they have bought product at such levels from at least one European producer source.
Smaller buyers are still under pressure to accept net levels of €1,400/tonne in some cases and a couple of major suppliers are still attempting to limit the damage in October to a few euros. This is looking less likely as time goes by.
Linear low density polyethylene (LLDPE) commodity C4 (butene based) prices are fairly steady around the €1,300/tonne FD NWE level, as port congestion in Saudi Arabia is still limiting availability. Product is not short, but there is no oversupply in this sector either, according to buyers.
Other LLDPE grades are more difficult to read as buyers are offered competing grades by sellers with different agendas.
INEOS is offering volumes from its newly-converted metallocene linear low density polyethylene (MLLDPE) plant in Cologne, Germany, exerting pressure on the LLDPE market in general.
The high density polyethylene (HDPE) sector is probably the most comfortably placed at present in Europe, as three cases of force majeure have supported the supply/demand balance.
“There are no longer any shortages,” said a large buyer, “but product is not long either.”
Price decreases in this sector are being limited to around €30/tonne at present, compared with September.
“I was offered minus €50/tonne last week, but now that naphtha has gone back up again suppliers are talking closer to minus €30/tonne. I wish I had settled then,” said another large buyer.
Naphtha was trading at $959-966/tonne CIF (cost insurance freight) NWE on Friday morning. It is the volatility in upstream naphtha and crude oil prices in 2012 that has caused so much volatility in the PE and PP sector this year.
In June naphtha fell to $683/tonne CIF NWE, but has rebounded, increasing steadily and bringing up PE and PP prices in its wake. Expectations are for naphtha prices to ease in the coming weeks, on improved refinery output, but there has so far been little sign of any significant easing of prices.
PP prices for October are also under downward pressure on weak demand.
“We have been offered a decrease of €40/tonne so far but are holding out for more,” said a large buyer.
PP prices have been settling down by around €40-50/tonne so far in October, but the supply/demand balance is not bad, as minor production problems prevent oversupply.
“This is not a free-for-all,” said one. “We are cutting production to be in line with demand.”
Several traders and distributors agreed with this approach.
“Prices are decreasing, for sure,” said one, “but they are not collapsing.”
Buyers are expected to proceed with caution for the remainder of 2012. End-year volume rebates mean that producers will be favoured over traders in the last part of the year, and demand is not expected to show any significant upward trend as European economies continue to flounder.
PE and PP are used widely in the packaging sector and in the manufacture of household goods. PE is also used in agriculture and PP in the automotive industry.
($1 = €0.77)
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