11 February 2013 00:00 [Source: ICB]
European polyethylene (PE) and polypropylene (PP) producers are aiming for higher prices in February, following a similar move in January that turned out to be disappointing as ambitious targets fell short, several said.
Numerous sellers complain of their lack of success in January, but prices rose across the board by €20-60/tonne ($27-81/tonne) depending on grade of product and starting point of price levels, in spite of a rollover in the upstream January ethylene contract and a €13/tonne drop in the propylene contract, leading to improved margins.
Producers' price ideas continue to head upwards
All sources agree that prices are up on reduced output, both planned and unplanned production outages in Europe and the Middle East, rather than on market fundamentals. European economies are still sluggish and no noticeable improvement is expected this year.
Buyers are not convinced by increases in February, particularly as Asian markets will close for holidays and the euro continues to strengthen against the dollar.
Some European buyers also note more offers of high density polyethylene (HDPE) film grades and HDPE blowmoulding imports.
"I cannot see increases in February with ethylene rolling over," said one large buyer.
Several large Middle Eastern plants are out of action, however, and European producers intend to keep production reduced as naphtha, although volatile, still trades at a high level, keeping cost pressure on European polymer producers.
Many PE buyers have still not settled January, as retroactive contracts are in place.
Low density polyethylene (LDPE) prices traded around €1,350/tonne FD NWE and PP homopolymer injection prices were at €1,230-1,260/tonne FD New on 29 January.
Price hikes for January polyethylene (PE) in Europe have fallen far short of those targeted by producers, and some are now saying they will continue to push prices up in February, sources said.
FAILED JANUARY HIKES
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.
The week of 28 January, some producers said they are 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 try 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 said.
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 FALLS FROM HIGHS
Spot PE prices have slipped from highs at the end of December and in 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."
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