FocusEurope PE buyers watch ethylene prices for Aug price direction

22 July 2013 15:18  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--Polyethylene (PE) buyers in Europe are watching upstream ethylene movements with interest to glean some indication of where polymer prices could land in August, sources said on Monday.

Ethylene monomer sellers are currently looking for price increases of around €50-100/tonne ($66-132/tonne) for the August ethylene contract, but PE buyers can see no reason for prices to rise by so much with downstream demand so uncertain.

“Where is the justification for such a draconian hike in prices?” asked one PE buyer.

Producers are looking upstream to high naphtha and crude oil costs in justification of price increases, and PE producers are expected to attempt to lift PE prices in line with any increase in the August ethylene contract.

Tightness in some PE sectors is supporting producers’ arguments for price increases but the holiday season and its accompanying usual drop in demand, coupled with the weak economic situation in Europe, could add support to buyers’ unwillingness to pay higher prices in a holiday month.

Naphtha prices were at $832-834/tonne CIF (cost insurance freight) NWE (northwest Europe) during the week that the July ethylene contract settled at a rollover from June, at €1,170/tonne FD (free delivered) NWE. On Monday, naphtha was trading at $890-892/tonne CIF NWE, down from $903-906/tonne CIF NWE the previous week.

Cracker margins have also been hit by the whopping €250/tonne, or 20%, drop in the July butadiene (BD) contract, and PE producers say current margins are not sustainable.

July PE prices have increased to an extent, depending largely on the grade of PE in question, in spite of the rollover in the July ethylene contract. .

Low density polyethylene (LDPE) availability is particularly tight, and prices have increased by €20-30/tonne as several producers have closed order books on lack of inventory.

Lack of PE availability, however, is mainly down to production cuts rather than strong demand. LDPE spot prices are hovering around €1,300/tonne FD NWE on a net basis, with business done on either side of this mark depending on region and size of buyer.

Linear low density polyethylene (LLDPE) availability is also tight and is under upward pressure in July.

“Some producers are pushing for increases ... in particular ... €40-50/tonne for LLDPE,” said a large buyer.

High density polyethylene (HDPE) prices have been largely stable, with only injection grades rising in price, leaving film and blowmoulding grades flat.

European naphtha-based PE producers are under increasing pressure from competition from low-cost producers, mainly in the Middle East and the US, and this month Borealis announced the closure of yet another HDPE plant in Europe as new large-scale capacities arrive on the scene.

The August ethylene contract is expected to settle towards the end of the July and will give some idea of where PE prices will land in August.

PE is used widely in the packaging and household goods sectors and also in the agricultural industry.

($1 = €0.76)

By: Linda Naylor
+44 20 8652 3214

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