FocusWeak demand concern for PE, PP sellers in Europe

05 March 2013 11:20  [Source: ICIS news]

By Linda Naylor

Europe PE, PPLONDON (ICIS)--Demand for polyethylene (PE) and polypropylene (PP) is causing concern for sellers in Europe, as volumes remain flat in most areas, sources said on Tuesday.

“Demand is poor and there is too much product,” said a PE producer.

PE sales in Europe have been below average for six months and while sellers are hopeful that demand will improve in March, few expect any strong upturn in the short term.

PP demand has not been particularly strong either, but production setbacks and propylene supply issues mean that oversupply in this market is not so pronounced as in the PE sector.

Producers are targeting price increases in March, following an increase in monomer contracts. The March ethylene contract rose by €50/tonne ($65/tonne), to settle at €1,325/tonne FD (free delivered) NWE (northwest Europe), and the propylene monthly contract increased by €55/tonne, at €1,155/tonne FD NWE.

Some polyolefin producers are targeting just the monomer increase for March, while others are aiming for some margin improvement.

Several ruled out selling at anything below the increase of monomer, a target that some buyers were confident of achieving.

“If we start losing margin there’ll be no point running the plants,” said a major producer. “The crackers are making no margin and the polymers are making no margin.”

Naphtha prices have fallen in past days, and on Tuesday morning had rallied a little to trade at $926-928/tonne CIF (cost insurance freight) NWE. In the middle of February, naphtha prices traded consistently above $1,000/tonne CIF NWE.

There was an uptick in spot PE activity following the settlement of the monomer contracts on 28 February, and while volumes have not been particularly strong, prices have edged up.

Low density polyethylene (LDPE) is no longer trading below €1,300/tonne FD NWE, and spot sellers are pushing for levels closer to €1,350/tonne FD NWE, for other PE commodity grades, from levels around €1,300/tonne FD NWE.

Linear low density polyethylene (LLDPE) C4 (butene-based) prices are sometimes traded above the €1,350/tonne FD NWE level, as it remains the tightest PE grade, but there is still business towards the €1,300/tonne FD NWE level.

In spite of low demand and the hard job sellers are having transferring upstream costs onto their customers, inventories of PE and PP are not thought to be particularly high along the chain and several sellers expect availability to tighten quickly if demand returns faster than has been seen in recent months.

“We can only cover contractual business at the moment,” said a PP producer, “we don’t have enough for any extra business.”

Sources admitted that demand is hard to predict.

“They [buyers] won’t buy a kilo more than they need,” said another producer. “It’s all too difficult to predict.”

“This is a month when we will wait until the very end to get the best deal,” said one large buyer. “Demand is down and everybody will be running down stocks, including our customers.”

Settlements in the PE market are often done only at the end of the month, particularly in the LDPE and LLDPE sectors, while PP business is usually settled by mid-month.

PP and PP are used widely in packaging and household sectors, and PP is also in the automotive industry. PE is used in the agricultural sector.

($1 = €0.77)

By: Linda Naylor
+44 20 8652 3214

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