19 April 2013 09:26 [Source: ICB]
Lower naphtha prices are weighing heavily on sentiment in the European polyethylene (PE) and polypropylene (PP) markets as buyers hold off taking more volume in April in anticipation of lower prices in May, sources said on 12 April.
April PE and PP monthly prices are declining following the €50-60/tonne ($66-79/tonne) drop in the April monomer contracts, but lower naphtha prices are leading to expectations of another decrease in May contracts that converters expect to be passed on to polymers.
Polyethylene is used widely in the agricultural industry
Lower naphtha prices mean better margins for integrated cracker operators so discreet PE spot offers from European producers are not uncommon at large accounts, but weak polymer demand in Europe and beyond is adding to expectations of lower prices to come.
"We are being offered the full monomer reduction for April and another reduction if we take more volume, but we can't do that without building stocks, and May will definitely be lower," said a large PE buyer.
"Sellers complain about low margins but then they push volume. You can't keep margins and push volume at the same time," said another polyolefin buyer.
Production is cut back throughout Europe, in some cases to 80%, but sellers still have difficulty placing volumes.
"April was a short working month because of Easter and there are several holidays in May in Europe that won't help demand," said a producer.
Imports of high density polyethylene (HDPE) in particular are also adding to downward price pressure, but the main concern is over demand.
Spot low density polyethylene (LDPE) prices have been heard in the low €1,200s/tonne FD (free delivered) NWE (northwest Europe) in the week ending 14 April. They were at €1,320-1,350/tonne in early March.
PP spot prices are also down, but to a lesser extent, to around €1,190-1,230/tonne for net homopolymer injection, from a level of €1,230-1,260/tonne FD NWE a couple of weeks earlier.
Turkey's Petkim drops PE prices as Asia buyers' hesitancy adds to weak market
Turkish polyolefin producer Petkim has dropped most of its polyethylene prices as market weakness continues, sources said on 10 April.
Lower naphtha prices and a faltering Asian situation have stopped the flurry of activity that looked set to begin last week in its tracks. "If I were a buyer I would do the same," said a trader who complained that offers were being met with much lower bids, usually at unworkable levels.
Iranian offers are also more abundant as Asian buyers remain hesitant.
"They [Iranian producers] can't sell as much into Asia so they want to sell more into Turkey," said the trader.
Low density polyethylene (LDPE) prices have fallen sharply in recent weeks, from $1,570-1,580/tonne (€1,193-1,201/tonne) CFR (cost and freight) in early March to $1,480/tonne CFR for product subject to a 6.5% import duty.
Offers of Iranian LDPE have been too high to work of late as new duties imposed from 1 January left Iranian LDPE with an import duty of 13.5%. Most other LDPE importers are subject to a 6.5% duty, with European PE free from duty.
LDPE from some sources in the Middle East has been offered recently below $1,500/tonne CFR, but for Iranian LDPE to be interesting to potential buyers a hefty discount would have to be applied to compensate for the higher import duties.
Some sources say even levels of $1,440/tonne CFR would be too high to work and are pushing for lower levels. A Chinese trader was heard selling Iranian LDPE in Asia at $1,350/tonne CFR but these levels are not present in Turkey.
High density polyethylene (HDPE) prices are also under downward pressure, and offers of both LDPE and HDPE from Europe are adding to the already cautious sentiment.
PE exports from a limited number of sellers in Europe had been limited to LDPE but some HDPE grades were also offered out of Antwerp in the week ending 14 April.
Petkim lowered its PE prices by $15-25/tonne, with the exception of HDPE film, which remained stable.
On the morning of 10 April, naphtha was trading at $857-859/tonne CIF (cost, insurance and freight) NWE (northwest Europe), down from a level above $1,000/tonne CIF NWE in mid-February.
The weakness in the upstream naphtha market is having a dampening effect on demand globally.
PE is used widely in the packaging and household goods sectors and also in the agricultural industry.
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