FocusEurope PE producers’ Jan targets fall short, Feb hikes sought

28 January 2013 11:38  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--Price hikes for January polyethylene (PE) in Europe have fallen far short of those targeted by producers earlier in the month, with some now saying they will continue to push prices up in February, sources said on Monday.

Producers were bullish at the end of December and announced €80-160/tonne ($108-216/tonne) increases for January PE, based on production cutbacks and high costs. Momentum gained pace and expectations of strong increases were high. However, It soon became clear that demand in Europe would not support such increases.

Expectations of a big price rise in January stemmed mainly from the fact that prices in previous years had risen at the beginning of the year, rather than from any fundamental strength in the market.

By mid-January it was clear that price increases would not reach the lofty three-digit target proposed by a couple of producers, and now end-month settlements are being discussed at plus €30-60/tonne over December, depending on PE grade, seller and the starting-point of the negotiation.

“My main supplier came to me with an increase of €80/tonne at the beginning of the month, and now I think I might be able to get away with plus €30/tonne,” said one buyer.

“My supplier came with an increase of over €100/tonne at the beginning of the month, then it went down to €70/tonne, and now they’re at plus €50/tonne,” said another.

This week some producers said they were now reaching sales targets for the month and see the possibility of another price increase in February.

“We are not covering fixed costs at these numbers,” said one producer, who added it would attempt to bring prices up again in February.

“We will probably be looking at a €70/tonne hike for February,” said another.

Production remains cut back throughout Europe and some sources say this is the only way for high-cost naphtha-based producers to survive. An alternative would be for more permanent closures, sources say.

Dow closed its 190,000 tonne/year high density polyethylene (HDPE) plant at the end of 2012 for commercial reasons. Competition from cheaper feedstock regions, like the US with its abundance of shale gas, and gas-based producers in the Middle East, make naphtha-based PE expensive to produce in comparison.

Spot PE prices have slipped from highs seen at the end of December and early January, as bids come in lower and sellers attempt to entice buyers back to the market.

Low density polyethylene (LDPE) spot prices had increased to €1,380/tonne FD (free delivered) NWE (northwest Europe) on a net basis, and sometimes above, but some are now trading in the low-€1,300s/tonne FD NWE, and demand is slow.

HDPE bids have gone as low as €1,300/tonne FD NWE, from a sold €1,350/tonne in early January. Here too business is slow and there have been signs of increased availability.

“I have had two calls from major suppliers asking me to take extra volumes,” said a large HDPE buyer. “I can’t see how they can increase prices again in February.”

The strongest PE grade remains C4 (butane-based) linear low density polyethylene (LLDPE), which several sources said was in short supply earlier this month. Spot prices had been as high as €1,380-1,390/tonne FD NWE, but even here lower prices have crept into the market, although most players still see this as the most solid PE sector.

End-month settlements in the LDPE and LLDPE sectors are still not finalised at retroactive accounts in much of Europe, and business will only be final in the coming days, before the whole process begins again for February.

Producers are expected to maintain rigorous controls on output as long as naphtha prices remain high.

PE is used in the packaging and agricultural sectors and also in the manufacture of household goods.

($1 = €0.74)

By: Linda Naylor
+44 20 8652 3214

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