Price and market trends: Europe polyolefins buyers aim for relief in July

28 June 2013 09:50  [Source: ICB]

After being hit with price increases in June, polyolefins purchasers are hopeful of flat to lower numbers

Polyethylene (PE) and polypropylene (PP) buyers in Europe are becoming hopeful of relief in the form of stable or even lower prices in July following a fall in crude and naphtha numbers, several said.

Brent crude oil was back above $100/bbl on 24 June, but buyers sense the possibility of lower downstream offers on lower feedstock costs.

 Buyers are looking for some respite from climbing prices

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During the week ended 14 June, polyolefin and olefin European price driver naphtha was traded as high as $868/tonne CIF (cost insurance freight) NWE (northwest Europe), while on Friday 21 June it had dropped to $821/tonne CIF NWE. By midday on Monday 24 June, naphtha was back up to $827-829/tonne CIF NWE.

"With these price drops, polymer is on the way down," said one buyer.

"I can't imagine anything will change in June but if fundamentals stay as they are today then July could be interesting," said another.

May demand was strong in Europe, for both PE and PP, as buyers returned to the market following a period of weak volumes at what they saw as the bottom of the cycle, to replenish empty stocks, and while June volumes were also good, they were not as strong as in May.

"We bought all we could in May. Prices were the lowest since July 2012," said another large buyer. "I am covered for the summer now."

How much buyers had been able to cover themselves in May and June was down mainly to the polymer grade in question.

Low density polyethylene (LDPE) and C4 (butene-based) linear low density polyethylene (LLDPE) buyers in particular have been faced with tight availability that few expect to ease in July, while high density polyethylene (HDPE) blowmoulding and film buyers have been able to cover themselves with relative ease, in spite of big cutbacks at the cracker and polymer production level.

PP producers generally describe a balanced-to-tight availability scenario, and while buyers have been aware of this, they say they have not had difficulty getting hold of all they need.

As June business draws to a close, and indeed several producers closed orderbooks early as demand outstripped supply in some grades, the focus of attention is on July. The market is waiting for the settlement of monthly monomer contracts to give some direction to PE and PP pricing.

"C2 [ethylene] will roll over, to give support to the PE market," said one of the buyers.

Expectations over the July ethylene contract have been leaning towards a rollover by much of the market, and towards a modest increase in the propylene contract. Now that naphtha was lower, some polyolefins buyers speculated on the possibility of a price reduction.

"I don't think there will be much change for July ethylene and propylene [contracts]," said a market observer.

"We have to look at the average of naphtha pricing throughout the month," said a producer, "and we have seen in the past how volatile that can be."

The volatility in the naphtha market had contributed to a spectacular price movement in June/July 2012, as some producers reacted swiftly to a sharp drop in naphtha pricing by dropping PE and PP prices by as much as €170/tonne ($224/tonne).

They were met with a sharp upward move within days, leading to disarray in PE and PP markets throughout Europe.

There were no such expectations for PE and PP next month in Europe. "I don't expect prices to collapse," said one of the buyers, "but I do expect some erosion."

Producers are generally sanguine over July business, and some have already made it clear they will be looking to improve margins again next month.

Not all buyers have comfortable stock levels, and there has been a good deal of hesitation over going on holiday with a warehouse full of expensive inventory in such uncertain circumstances.

The situation is expected to become a little clearer once monomer contracts have settled.

LDPE spot prices are trading around €1,300-1,350/tonne FD (free delivered) NWE from a low of €1,150/tonne FD NWE at the beginning of May. Meanwhile PP homopolymer injection prices are around €1,200-1,230/tonne FD NWE on a net basis.

By: Linda Naylor
+44 20 8652 3214

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