FocusSlow start for Europe November PE, PP business

02 November 2012 10:40  [Source: ICIS news]

By Linda Naylor

Polyethylene is used in food packagingLONDON (ICIS)--European polyethylene (PE) and polypropylene (PP) business has been slow to start for November, following the limited change in upstream ethylene and propylene contract settlements earlier in the week, sources said on Friday.

The November propylene monomer contract fell by €20/tonne ($26/tonne) to settle at €1,120/tonne FD (free delivered) NWE (northwest Europe), and the ethylene contract slipped by just €15/tonne, to €1,275/tonne.

“There is no great appetite, either on the buy or sell side, for a price slide,” said one PE producer, and most sellers have begun the month with ideas of a rollover or slight erosion.

Many buyers, and sellers too, have found the volatility of pricing in 2012 difficult to manage, and some fear another price fall in the fourth quarter, only to be followed by another strong upward move in January as producers try to claw back margins.

Production is cut back at all levels with this in mind, as players do not want high-priced stock in their warehouses.

Naphtha and crude oil prices remain high, and cracker and polymer production is estimated at 70-80% in Europe, to accommodate reduced demand.

Sources point out that it is not feasible for crackers to run at this rate long term and hint that permanent closures will inevitably occur in Europe, as competition from low-cost feedstock increases.

PP is in a better balance than PE, due mainly to cutbacks and minor production hiccups that have kept some producers tight.

“We don’t expect quarter four demand to pick up,” said one PP producer, “but there isn’t much oversupply in the market.”

While neither PE nor PP buyers expect a collapse in pricing in November, most are confident that they will achieve a bigger drop than the one currently proposed for November business.

“We’ve been offered an initial drop of €15/tonne, but expect more by the end of the month,” said one buyer.

Expectations of a bigger decrease than the one in the monomer contracts are high and probable, but most buyers talk of a €40-50/tonne drop, not much more.

Holidays on 1 November in much of Europe mean that business has not even come under discussion yet in most cases.

Low density polyethylene (LDPE) net prices are trading in a wide range, with some spot offers from producers at €1,250/tonne FD NWE. PP homopolymer injection is reported at similar levels, on a net basis.

There is already speculation over December pricing. Some converters expect the low level of demand to lead to special offers by the end of the year, and most plan to continue with minimal buying as the likelihood of prices rising in the short term is very low.

“PE prices have gone up in January in the last four years,” said one large buyer. “I can see this happening again in 2013. Demand is poor, December prices crash, prices back up in January. Nothing changes.”

By mid-November the level of demand for the month will be clear and will give direction to pricing. October demand was poor for most grades of PE and PP, with the possible exception of high density polyethylene (HDPE), where restrictions are still in place on production problems.

September and October volumes were poor, but there was optimism from one PE seller who sees buyers coming to the market to replenish stocks:

“We are already 20% ahead of last month, on the second of the month.”

PE and PP are used widely in the packaging and household goods sectors. PE is also used in agriculture and PP in automotive production.

($1 = €0.77)

By: Linda Naylor
+44 20 8652 3214

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