Price and market trends: Europe PE players gamble on price direction for coming weeks

29 November 2012 18:47  [Source: ICB]

Polyethylene production is heavily cut back and is expected to remain reduced as demand stagnates

Polyethylene (PE) buyers and sellers are behaving with extreme caution as the price direction for December and January remains unclear, in spite of a bold move from one major producer who will target an increase for December, players say.


One European producer is betting on a price increase

Copyright: Rex Features

"There isn't a hope in hell of that [price increase] working in December," said a large buyer. "People have bought too much low-priced spot for that to happen."

"Nobody is going to make any stock in December," said a trader. "Prices are too high for that."

Low density polyethylene (LDPE) spot parcels were sold very discreetly by some producers to selected large accounts at below €1,200/tonne ($1,538/tonne) FD (free delivered) NWE (northwest Europe) in some cases at the beginning of November. These offers are no longer there as sellers have sold out, but some buyers now have comfortable inventory levels to see them through to the end of 2012.

LDPE prices are now slightly higher, with sellers offering in the mid-€1,200s/tonne FD NWE and above. Activity is muted, and buyers buy only what they need.

These low-priced spot deals did not include much high density polyethylene (HDPE) as product availability has been restricted because of several cases of force majeure, declared earlier in the year.

November PE demand has been better than in September and October, and producers have been encouraged by this. Fundamental demand remains weak, however, and it is not clear how long increased volumes will continue to trade.

"Now they've bought, they [converters] have enough product to see them through until January," said the trader. "You can only sell something once." Other sellers see a more critical supply situation.

"I have sold all my C4 [linear low density polyethylene (LLDPE)]," said another trader. "Buyers are coming for more and are happy to pay higher prices."

This disparity in market views is common at present, as the market mood seems to be shifting. There is still a good deal of scepticism about the possibility of prices moving up in December, however. There is also speculation over how long any upturn could last, as market fundamentals are weak.

"They might do something in January but they won't be able to hold onto it for long," said another large buyer. "If prices don't go down in December, they can't go up in January," said a third buyer.

Producers argue that they cannot sell at negative margins, and point to the announced closure of Dow's Tessenderlo HDPE plant in Belgium, slated for some time in 2013, as proof that margins are unsustainable. "You don't close down production when you are making money," said another producer.

Discussions over PE pricing centre on short-term business, but questions over the long-term sustainability of naphtha-based production in Europe hang in the air. Many sources expect more plant closures to take place in Europe, given the cost advantage of other regions.

In November polyolefins giant Borealis's CEO Mark Garrett said he believed that Europe was entering a ten-year period of stagnation, in an interview with ICIS.

PE players expect 2013 to play out in a similar way to 2012, when stock shifted between buyers and sellers, creating a volatile situation that both found hard to manage. PE production is heavily cut back and is expected to remain reduced as demand stagnates.

PE is used widely in packaging and in the agricultural sector.

By: Linda Naylor
+44 20 8652 3214

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