Price and market trends: Europe polyolefins producers seek €30-60/tonne in hikes

12 July 2013 09:33  [Source: ICB]

Producers aim for price increases of €30-60/tonne, but only certain grades are in tight supply

European polyethylene (PE) and polypropylene (PP) producers are targeting €30-60/tonne ($39-78/tonne) increases in July, in spite of the rollover in upstream monomer contracts, and ahead of uncertain demand as the summer slowdown approaches, sources said on 1 July.

PE and PP prices rose by more than the monomer contracts in June, following better-than-expected demand in May. This, coupled with a reduction in naphtha prices in June, led to an improvement in producers' margins.


 Producers are planning hikes in Europe for polyethylene and polypropylene in July

Copyright: RexFeatures

Producers said margins are still too low to be sustainable, however.

"In July we will apply a delta over C2 [ethylene]," said one PE producer. "Inventory levels are dramatically low. Destocking was so high we are starting July pretty short."

Increases in June are widely acknowledged to be based on reduced output and the return to the market of buyers convinced that prices had reached the bottom in May, rather than on any improvement in fundamentals.

May volumes rose sharply following several months of poor demand that led to cutbacks in output that reached as low as 70% at some PE and PP production units in Europe. Cracker output has now increased to an estimated 85% and some polyolefins players think this might lead to oversupply as demand slows down over the slower summer period.

Some PE grades in particular are tight, however, and producers do not expect converters to be able to recover a workable level as early as July.

Dow Europe announced a €50/tonne ($65/tonne) price increase for July PE resins across the European, Middle Eastern and African regions.

"Effective 1 July 2013, or as contract terms allow, Dow Europe GmbH increases prices for all grades of its low density polyethylene (LDPE), linear low density polyethylene (LLDPE) and high density polyethylene (HDPE) resins by €50/tonne," the statement said.

Buyers in Europe have already been responding to widespread targets of higher prices from producers for July business, and there is a good deal of scepticism, particularly over attempts to raise HDPE blow moulding and film prices, where imports are widely available.

Low density polyethylene (LDPE) and C4 (butene based) linear low density polyethylene (LLDPE) grades in particular are in tight supply and producers are fairly confident of hiking prices again in July.

LDPE prices rose by a minimum of €50/tonne in June, bringing spot prices up to €1,300-1,350/tonne FD (free delivered) NWE (northwest Europe) on a net basis, with one major producer forcing a €70-80/tonne increase on its buyers at the end of the month.

LLDPE buyers were also under strong pressure to accept increases as import volumes dropped, leaving buyers unable to source extra product elsewhere. Europe is a net importer of C4 LLDPE, with one source estimating that imports account for as much as 80% of the market.

"We're not having a good time," said a buyer of LDPE and LLDPE. "It's tight. It's caught us on the hop."

LLDPE C4 prices are trading around €1,260-1,290/tonne FD NWE on a net basis.

Tightness in this sector is expected to be maintained over the period of the Ramadan religious festival because Middle East companies remain the major provider of C4 LLDPE to Europe.

High density polyethylene (HDPE) is not experiencing the tightness of LDPE and LLDPE, and buyers do not feel under any particular pressure for July, in spite of the fact that producers managed to lift prices in June.

One large HDPE buyer said it was pursuing a decrease in the face of increases from producers next month. "July is proving interesting I wouldn't mind betting we end the month at rollover."

PP buyers also accepted increases in June, but they argued that they had not been faced with any product shortages and were sceptical over July increases. Some producers said their inventory levels are low and would not be back to a workable level in July, however.

PE and PP pricing discussions for July will begin soon.

Several sources said the success of producers' targets will depend largely on demand in July.

There has not been a run on spot product and spot prices have stabilised and even dropped in some cases. Sources say this could be a sign that buyers have enough stock to wait to see how July evolves before committing to product at higher prices.

By: Linda Naylor
+44 20 8652 3214

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