10 May 2013 09:46 [Source: ICB]
STANDFIRST: Producers of PE and PP are maintaining strict control of output to avoid oversupply, estimating current levels to be at 75-80%
Polypropylene (PP) and polyethylene (PE) buyers in Europe are targeting the full €80-100/tonne ($105-132/tonne) price decrease in the monthly monomer contracts, in spite of some producers aiming to increase the spread between monomer and polymer, several said on 2 May.
"If they don't give me the full monomer [drop], I won't buy," said one buyer. "It's a buyers' market."
"I'm hesitating over whether I should accept the €80/tonne decrease on PP now," said another, who was keeping a close eye on naphtha movements.
Naphtha was trading at $794-796/tonne CIF (cost insurance & freight) NWE (northwest Europe) on 2 May, from a high of $812-814/tonne CIF NWE only the week before. The May propylene contract settled down by €80/tonne, at €1,025/tonne FD NWE, and the ethylene contract was down by €100/tonne, at €1,165/tonne FD NWE.
The headline monomer prices are barely above the polymer price in some spot cases.
Bids for spot PE are frequently at €1,100/tonne FD NWE, with sales confirmed at €1,150/tonne FD NWE. The spread between PP and monomer is wider than between ethylene and PE, but most producers still say that margins are unsustainable.
STRICT OUTPUT CONTROL
Producers are maintaining strict control of output to avoid oversupply, estimating it to be at 75-80% of capacity, and some expect May pricing to be the bottom of the current cycle. Buyers are very wary of this, however.
"They are trying to persuade us that prices will go no lower, but I don't believe that," said one of the buyers.
"With naphtha where it is today I expect another drop in both ethylene and propylene contracts for June," said another.
Most sources refused to consider June monomer prices so early in May, but all sources are keeping a close eye on the pricing trend in the naphtha market.
One major producer has offered the full monomer drop on PE and PP in May, but says this offer is valid only for the first half of the month. Others offer a more modest drop in a move to retain some of the margin gained with lower monomer contracts.
"Our tactic is to achieve spread improvement," said a PE producer. "The market is well balanced, so it should be possible."
Holidays in Europe have meant business has been slow to start, and much business, particularly in the PE sector, is yet to be discussed.
The message from most PE and PP producers has been that they will decrease prices into May; the question is: how much?
Most buyers expect to be able to get hold of the full monomer drop by the middle of the month, but a lot depends on the level of stock with both buyers and sellers, and the direction of naphtha.
Many sources look to mid-2012, when naphtha prices slumped, leading to a sharp fall in PE and PP prices. Only days into July the naphtha price increased sharply, leaving polymer markets in disarray and sellers on the back foot.
"This can't be another 2012," said one producer. "Stocks are under control and we will continue to monitor output carefully."
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