Europe PE, PP players look for year-end direction

22 November 2012 20:24  [Source: ICB]

Polyethylene (PE) and polypropylene (PP) buyers and sellers are taking a careful look at factors affecting pricing in December and January to determine how to manage business at the end of the year, according to several sources.

"Some of my buyers say it's going up in January, some say it's going down, it's very hard to predict," said a distributor. Buyers look back to the past four years, when prices have risen in January, and some have begun to buy extra volumes, albeit at low prices.

Mountain directions Rex Features

Rex Features

As the end of the year approaches, European buyers and sellers are trying to ascertain which way prices are going

"The mood has changed quite a bit in the last couple of days," said a trader. "A lot of customers are coming back to buy. They want lower prices, but there is new buying interest."

Net spot low density polyethylene (LDPE) prices are as low as €1,200/tonne ($1,538/tonne) FD (free delivered) NWE (northwest Europe). As recently as mid-October they were in the mid-€1,300s/tonne. Monthly prices have not fallen so sharply, but there has been an increasing number of special deals from western European producers.

Similarly, PP net spot prices have fallen. Homopolymer injection levels are sometimes now below €1,200/tonne FD NWE, from the mid-€1,200s/tonne in October.

PP sellers have not seen buyers coming back for volumes as they have in the PE sector, but the PP market has been slightly less volatile in recent weeks.

All buyers are aware of increasing prices in January in recent years, but some argue that there is no reason for prices to rise in 2013, given the dire economic circumstances of European economies and the impact of that globally.

"There is no actual reason for price increase in January, in fact the [US] 'fiscal cliff' provides a very sound reason why prices should actually fall in quarter one 2013, but in the last few years the market has been tight in quarter one and prices have gone up so it depends on whether you try to predict prices using future knowledge or past reality," said one large buyer.

EU polyolefins Another said: "People will come back to the market and buy in December to avoid an increase in January," adding: "When demand improves, prices will go up."

One thing most players agree on is that fundamental demand is poor, and that 2013 will be a tough year. Any potential increase will be based on restricted production rather than any strength in markets.

Capacity is reduced, and some estimate that rates are as low as 70% for polyolefin output in Europe. Naphtha pricing is expected to be a major determining factor in December and January polymer pricing.

"With naphtha where it is at the moment, there is only one way for December propylene [contract] to go," said a producer, who expected the new contract to be settled at a reduction.

On Friday morning naphtha prices had slipped to $913-915/tonne CIF (cost insurance freight) NWE, and expectations are that they will slip further.

UNPREDICTABLE NAPHTHA

Naphtha is notoriously difficult to predict, however, and tensions in the Middle East could mean that a price drop fails to materialise.

The October propylene contract is at €1,120/tonne FD NWE, down €20/tonne from September, while the ethylene contract is at €1,275/tonne FD NWE, down €15/tonne In the recent past, PE and PP prices have followed monomer movements closely. But in November, polymer prices have fallen by more than the drop in monomer.

Whatever happens to pricing in December, all players are expected to continue to proceed with extreme caution.

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


By: Linda Naylor
+44 20 8652 3214



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