OUTLOOK ’13: Europe PE, PP players expect weak 2013

24 December 2012 12:30  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--Polyethylene (PE) and polypropylene (PP) players in Europe are bracing themselves for a difficult 2013, given the hard year they have had in 2012, and the general economic outlook for next year, several have said.

Prices have been volatile in 2012, making it hard for buyers and sellers to manage their businesses. During December, run rates at polymer production units have reached 75% in many cases, as producers attempt to manage stocks in a high-priced, low-demand environment.

Growth rates for 2012 are expected to be negative compared with 2011.

Low production rates are expected to continue during 2013 as expectations are for weak demand throughout next year and while there are expectations for higher prices in January, sources stress that higher prices are based on reduced output rather than any fundamental market strength – a mantra that has typified these markets in 2012.

“We’re expecting pain next year and we just have to get through as best we can,” said a large buyer.

“We expect the same sort of volatility we have seen in 2012, but this is only based on experience this year, nothing more. We accept that our producers are working on wafer thin margins, and so are we. We are squabbling over the scraps.”

In spite of widespread expectations of higher prices in January in the polyolefins sector, particularly for PE, sources speculate on how long higher prices could be sustained.

“The harder they [producers] push in January, the quicker prices will come down,” said another buyer.

One major PE producer has hinted that a whopping three-digit increase will be on the cards for January, but some players wonder if demand next month will support such a move.

“We are no longer willing to produce at these margins,” said one producer.

Many sources expect prices to fall more quickly in the first quarter of 2013, if prices are pushed up strongly in January.

“If they [producers] are sensible and look for modest increases in January, there is a chance that prices will be sustained throughout February and March. If they insist on three digits, I expect prices to fall very quickly,” said another buyer.

European PE and PP prices are driven mainly by naphtha, the price of which has been firm since its sharp decline and subsequent rebound in summer 2012, causing the massive volatility seen in summer polyolefins pricing.

Low density polyethylene (LDPE) spot prices have risen by 12.5% since the beginning of November, and are now trading at around €1,350/tonne ($1,776/tonne) FD (free delivered) NWE (northwest Europe).

PP homopolymer injection prices have seen a more modest increase, of around 6%, since mid-November, and are now trading at around €1,250/tonne FD NWE.

“The market is very nervous,” said a trader. “We can sell small volumes at higher prices but there is no real wave of prebuying. I think buyers expect much the same as in 2012 and will keep their stocks low.”

Production is expected to be kept running at low rates next year, and a series of planned cracker shutdowns in the second quarter, lasting until July, will also mean reduced polyolefin output, but pricing will depend mainly on upstream movements in the crude oil and naphtha sector.

New capacities in the Middle East, particularly Saudi Polymers’ new million-tonne high density polyethylene (HDPE) and 400,000 tonne/year PP units, are expected to have an effect in Europe once production is normalised at the Al-Jubail site in Saudi Arabia.

The European Central Bank (ECB) has cut its GDP forecast for the eurozone to minus 0.5% and this is also expected to have an impact in the stronger Asian sector.

In October, Dow Europe announced the closure of its 190,000 tonne/year HDPE plant at Tessenderlo, Belgium, and sources expect more closures to be made in the medium term in Europe.

“How long is it possible to run an industry at 75%,” asked several players, indicating that structural changes would have to be made.

($1 = €0.76)

By: Linda Naylor
+44 20 8652 3214

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