FocusEurope PE, PP buyers face pressure of hikes in cautious market

11 January 2013 11:36  [Source: ICIS news]

Europe PE, PP buyers face higher pricesLONDON (ICIS)--Polyethylene (PE) and polypropylene (PP) buyers in Europe are faced with higher prices in January, and while many expect some increases to be implemented, most see little justification for hikes and intend to settle late this month where possible, several said on Friday.

On the whole, PE buyers expect to be paying more than their PP counterparts, who still express some surprise that they are under real pressure to pay higher polymer prices when the propylene contract price fell by €13/tonne ($17/tonne) for January. The ethylene contract price was stable from December - the third consecutive rollover of the European contract.

“The stage is set for an increase, but it’s not justified,” said one large buyer.

“Producers know it’ll be short lived,” said another, “there’s no legs in it. Demand is just not there.”

Demand in January has been slow for both PP and PE but production remains cut back at the cracker and polymer level.

“Demand is not here,” said another buyer. “They can’t do 'take it or leave it' this month. There is enough supply. It’s a margin-driven exercise. This is not like the past few Januaries when we have been forced to pay more or not get the product.”

In spite of stable feedstock pricing, as crude oil and naphtha prices move within a fairly narrow bracket, prices are settling higher than in December.

Producers argue that prices must rise as margins are execrable.

“We can’t go through another 2012,” said one. "Margins are not covering fixed costs."

Naphtha-based producers in Europe are under cost pressure, particularly in comparison with gas-based producers elsewhere, and this pressure is not likely to go away soon. Shale gas production in the US has slashed production costs, and Middle Eastern gas-based polymer is advantageous.

Many sources expect permanent closures in Europe in the future. In 2012, Dow Europe closed its 190,000 tonne/year high density polyethylene (HDPE) plant in Tessenderlo, Belgium, and the industry is expected to run at reduced levels throughout 2013 as new capacity comes on stream in Asia while European economies flounder.

In the short term, however, all signs are for higher prices in January. Spot prices have firmed, following a big jump in December.

Low density polyethylene (LDPE) spot prices are now above €1,350/tonne FD (free delivered) NWE (northwest Europe), from a low that reached €1,190/tonne FD NWE in mid-November.

PP prices have been less volatile, and homopolymer injection prices are trading around €1,250-1,260/tonne FD NWE on a net basis, from a low of €1,170/tonne FD NWE  in mid-November.

Meanwhile, naphtha and crude oil move within a fairly narrow range. On Friday morning, naphtha was assessed slightly down, at $923-931/tonne CIF (cost insurance freight) NWE, and Brent crude was at $111.61/bbl.

While most buyers accept that higher prices must be paid in January, they also expect prices to fall again by March/April, and they see the current upward trend simply as a shifting of stocks. They expect to see a similar picture in 2013 as in 2012, when extreme volatility made business hard to manage for both buyers and sellers.

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

($1 = €0.75)

By: Linda Naylor
+44 20 8652 3214

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