Price and market trends: Europe polyethylene spot prices dip while buyers seek rollovers

22 February 2013 10:23  [Source: ICB]

Buyers target rollovers for contracts in the face of earlier price increase announcements by producers

Europe polyethylene (PE) spot prices have fallen by a few euros as some sellers drop offers to encourage buying, and monthly buyers target rollovers for contracted business, in spite of earlier announcements of increases from producers, sources said.

Prices have eroded, but at a time when crude oil and naphtha, principal drivers in the PE market, are strong.

"We have seen lower prices, but only €20/tonne ($27/tonne) or so. Prices can't fall much further because of upstream costs," said a trader on 14 February, adding that price erosion was having a limited effect on demand, which was widely acknowledged to be pretty weak.

"€1,300/tonne is the magic number for PE this week," said the same trader, adding that all grades were trading at around this level on a DDP (delivered, duty paid) basis.

It is not only traders that are selling PE at such levels. Producers are also said to be offering spot low density polyethylene (LDPE) at this level or close to it.

As recently as mid-January LDPE traded at €1,350-1,380/tonne FD NWE but now demand is flat and trade is slow, even at €1,300/tonne FD NWE.

Inventory levels are not high, however, and some sources say that only a minor production hiccup could reverse the trend. Both buyers and sellers are working with low inventory levels.

Several planned and unplanned production shutdowns in Europe and the Middle East have led to reduced availability, but demand has declined in line with output.

High prices in Europe have led to imports, some arriving now, booked at the end of 2012, and others offered for arrival in six weeks' time.

Many large buyers have started to buy material directly from Asian and Middle Eastern suppliers, bypassing traders and often using imports, however small in quantity, to lever better deals out of European sellers.

"Material arriving now, booked at the end of 2012, will probably be too high to work," said a trader who felt confident that price erosion would be restricted to current levels.

Lower spot prices appeared at the beginning of the week ended 15 February and many sources said they were a reaction to the level of demand apparent mid-month. Now attention is focused on the March ethylene contract.

Any movement in the upstream contract would lead to pressure on PE pricing in March, but an increase in the March ethylene contract, possible because of the rise in upstream naphtha and crude oil prices, would certainly prompt higher targets for March PE business.

The monthly ethylene contract has for four months in a row been €1,275/tonne FD NWE, so sales of PE at €1,300/tonne FD NWE on a net basis are barely above the headline contract price. The monomer contract price is subject to discounts.

Monthly PE business is still under discussion at many accounts but increases of €50-70/tonne are no longer considered feasible by buyers. Only UK buyers are facing increases, as the pound sterling has lost ground against the euro. Hikes of £40/tonne (€46/tonne) are widely confirmed by UK buyers.

By: Linda Naylor
+44 20 8652 3214

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