21 June 2013 09:58 [Source: ICB]
Upturn began in May when buyers returned to the market to replenish low stock levels, and the momentum continues
Polyethylene (PE) buyers in Europe are under strong pressure to pay more for material in June as they continue to replenish low stocks, sources agreed on 14 June.
Buyers may have to pay more for polyethylene
LDPE availability is tight, with some sellers closing order books early for June, and other buyers have confirmed a strengthening trend as the month has progressed.
Spot prices are trading at €1,300-1,350/tonne FD (free delivered) NWE (northwest Europe), from a low of €1,150/tonne FD NWE at the beginning of May.
Linear low density polyethylene (LLDPE) availability is also balanced to tight, and buyers confirm hikes of €50/tonne, with spot prices in the mid-to-high €1,200s/tonne FD NWE.
High density polyethylene (HDPE) blow moulding prices have been slower to increase because product is more widely available.
"The market has lost momentum," said a large buyer.
"Our stocks are quite high now because we managed to buy spot product some weeks ago when prices were lower."
Producers are confident that the current upward momentum will continue into July, particularly for LDPE and LLDPE.
However, many buyers expect it to come to an end in July, or at the latest, August.
"I am not brave enough to fill my warehouses until the end of July," said one buyer.
"There is still a reluctance to go away on holiday in a market that doesn't make any sense."
Other sources said the current upward trend was based on production cutbacks, in place for several months to accommodate poor PE demand, rather than on any fundamental strength in the market.
June volumes have not been as strong as May, however, and producers are aware that if production is ramped up a downward trend could emerge as demand slows down for summer.
Tighter market for European ethylene, but for how long?
The European ethylene supply and demand balance has improved from April - which was deemed the worst month for demand so far this year - but there are concerns that the situation will revert in July to how it was, market sources said on 14 June.
The improvement in demand - notably for the key derivative polyethylene (PE) - was largely attributed to restocking and the perception that ethylene prices had bottomed out for the time being. It meant that cracker operators were able to increase cracker run rates from 75-80% on average to around 85%.
And so a market which had been very long - disappointingly so given the heavy cracker turnaround slate - became more balanced to a point which some sources now even describe as tight.
"The market is really drying out," a producer said, adding that over just two weeks it had sold considerable spot tonnage and its crackers were running at full rates.
"Its getting more and more tight," a second producer said, adding: "We are happy to be short."
Sources, however, were careful not to overplay the improvement in the market.
"There is good demand and perhaps there is room for improving the numbers, but we are staying cautious - [we] need to avoid going over the top," the second producer said.
Sources on the buying side were quick to point out that the tighter balance was largely down to supply restrictions rather than a change in the underlying structural demand levels. One major consumer agreed that the balance had improved, and spot prices with it, but said it was more a question of timing.
The view held by this major consumer and echoed among others was that sellers were balanced on paper but would inevitably find some need to sell to redress balances by the end of the month.
Another buying source said that its internal customers were of the opinion that derivative demand levels were not going to last for more than one or two weeks.
Sources said that the bearish sentiment was coming from an inevitable slowdown in activity in the summer months, even if not as pronounced perhaps as seen pre-2008 crisis - as well as the end of the spring cracker maintenance slate.
Much will hinge on the timely restart of Europe's largest cracker - BASF's 1.08 mn tonne/year ethylene cracker at Antwerp in Belgium, which is due to be restarted at the end of this month. Also, BP Refining & Petrochemicals (BPRP's) 540,000 tonnes/year ethylene cracker at Gelsenkirchen in Germany is set to be back online by mid-July.
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