26 October 2012 11:02 [Source: ICIS news]
By Linda Naylor
LONDON (ICIS)--Demand is the overriding concern of polyethylene (PE) and polypropylene (PP) sellers in Europe, and expectations of an improvement in November are based on hope rather than strong fundamentals, sources said on Friday.
“There’s not much stock along the chain, but I don’t think it’s people playing games,” said a major producer, “it’s just that they don’t have the orders.”
“Demand isn’t good,” said another. “Orders come in at the last minute for immediate delivery and converters’ order books are light.”
PP sellers generally report a brighter picture than for PE, as production hiccups and reduced output has led to a more balanced supply/demand situation. Even in the high density PE (HDPE) sector, where three cases of force majeure had tightened the market considerably this autumn, bids from buyers are lower.
Low density PE (LDPE) is now widely available at €1,250/tonne ($1,623/tonne) FD (free delivered) NWE (northwest Europe), down from well above €1,400/tonne FD NWE in the first half of September.
PP spot prices are holding up better, with homopolymer injection still trading around €1,230-1,250/tonne FD NWE, from a high just above €1,300/tonne FD NWE at the same time.
Converters expect more of a drop in November, as demand remains weak, irrespective of where monomer contracts settle.
Imported volumes have been restricted in October, mainly because of reluctance on the part of traders to bring material into Europe when prices are on a downward trend, but also because of port congestion in Saudi Arabia. Many sources say that this congestion has now eased and the market awaits the arrival of delayed cargoes.
These come at a time when the market cannot absorb them, according to many.
“What I can’t understand, is how prices are so high when demand is so low,” said a PP converter. “We have seen a brutal drop in packaging demand this month.”
“We have reached a level of demand that has been completely smothered by high prices,” he added.
October demand has been a shock for many, and some players make the comparison with 2008. Upstream prices remain high, however, with Brent crude oil trading at $107.94/bbl on Friday morning, and naphtha at $922-930/tonne CIF (cost, insurance, freight) NWE.
The inventory position is also not similar to periods that have seen big price decreases in recent times, as inventory is under control along the chain. October has seen some increases in stock at the producer level, caused by the drop-off in demand, but production is now cut back throughout Europe. Estimates of production rates are at 70-80% of capacity, with rates in southern Europe running lower than in the north.
The lack of export possibilities has exacerbated the situation in Europe.
“China is not buying at the moment,” said one of the producers.
Demand in Turkey has also been very flat, with buyers keeping an eye on movements in Asia and expecting prices to drop. Europeans have not been able to export there for a while, as prices were too low, but offers are now heard into Turkey from some parts of Europe, albeit at levels too high to work in most cases.
November monomer contracts are not expected to settle before the very end of October, so upstream naphtha costs can be fully considered by the market, but most PE and PP buyers expect a hefty drop in November pricing, whatever happens to the monomer contracts.
The ethylene monomer October contract stands at €1,290/tonne FD NWE and the propylene contract for October is at €1,140/tonne FD NWE. Both contracts are subject to discounts.
PE and PP are used widely in the packaging sector. PP is also used in the automotive industry and PE in agriculture.
($1 = €0.77)
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