Price and market trends: Europe PE spot prices surge on tight supply

31 May 2013 09:40  [Source: ICB]

Although PE demand has been poor, buyers have restocked, suspecting that May prices are the lowest of the cycle

European polyethylene (PE) spot prices are increasing sharply, with some grades rising particularly quickly as availability tightens following production cutbacks. Polypropylene prices (PP) are also rising, sources said the week ended 24 May.

Low density polyethylene (LDPE) and high density polyethylene (HDPE) injection prices have jumped significantly in the past couple of weeks.

 Polyproylene prices in Europe are rising on what sellers say is the highest demand for many months

Copyright: Polycart

On 23 May LDPE spot prices were as high as €1,320/tonne ($1,692/tonne) FD (free delivered) NWE (northwest Europe), from a level of €1,150/tonne only ten days before. HDPE injection was as high as €1,300/tonne FD NWE, from a low of €1,170/tonne FD NWE mid-May.

There was suspicion and scepticism over proposals of higher prices for June monthly business.

"I hope [producers] aren't assuming restocking is anything to do with demand," said one buyer.

Higher spot prices - some now higher than monthly contracted sales - make a June increase ­almost inevitable, however.

LDPE monthly prices are not fully settled, but net prices at large accounts are expected to be lower than the current spot levels - a situation that usually does not last long.

PE demand has been poor in Europe in 2013, but several sellers said May has been their best month by far this year, as buyers have come to the market to restock, suspecting that May prices are the lowest of the current cycle.

This sentiment stems from the change in naphtha prices that led to a €100/tonne decrease in the May ethylene contract price. Since that settlement naphtha prices have increased, but remain very volatile.

Tightness in the PE market has not been brought about by strong demand, but instead by stringent production cutbacks that have left output reduced by as much as 30%, according to market sources.

"If production is cut back by so much, you can see why prices are going up," said a producer.

Saudi producer SABIC's 400,000 tonne/year LDPE plant at Wilton has also been having a tightening effect on the market as, according to market sources, it has been running intermittently for several weeks. There was evidence in the UK that LDPE prices were moving to higher rates because of this.

Holidays in Europe were also affecting truck deliveries in May, contributing to the tightness in some areas.

June sellers are already preparing their buyers for increases, but most converters expect any upturn to fall flat in July and August as converters take holidays.

European PP spot prices are higher on tighter availability and improved demand, sources said on 24 May.

"Our PP demand has been 10% more than forecast for May," said one producer.

Most sellers said May demand had been the highest for many months and with production running at 70% in some cases, this has led to a sharp tightening of availability.

The rise in spot prices is in contrast to the decrease in monthly prices which fell in line with the €80/tonne ($104/tonne) drop in the May propylene contract price earlier in the month.

Producers are now retreating from this valuation as the supply/demand balance has changed dramatically, and many are now offering a much lower decrease for May business, even though most business has already settled.

Another producer said: "We are adding €50/tonne to new sales in May."

Spot homopolymer injection prices have reached €1,200/tonne FD (free delivered) NWE (northwest Europe) in many cases now, from €1,120/tonne FD NWE earlier in the month.

Producers are now considering their options for June business and see the possibility of a price rise as most stocks are low at both the buyer and producer level.

Converters said any upturn in pricing will not last long, however, as market fundamentals have not changed. European economies remain weak and the current tightening effect is based on drastic action taken by producers.

Most players are waiting for the settlement of the June propylene contract price to give direction to the June PP market.

"The jury's out on next month," said one large buyer. "If propylene rolls over I can't see PP prices going up next month. We will resist any attempt from producers to improve margins."

By: Linda Naylor
+44 20 8652 3214

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