09 August 2013 15:23 [Source: ICB]
Polyethylene (PE) and polypropylene (PP) buyers are being faced with price hikes in August following contract settlements of upstream ethylene and propylene at increases of €40/tonne and €50/tonne ($53-67/tonne) respectively, sources said on 5 August.
Producers announced higher targets with a minimum requirement of covering the monomer increases, but more often with an extra margin on top of the €40-50/tonne monomer rise.
Dow Europe has gone so far as to target a €100/tonne increase with another producer, which preferred not to be named, also thinking along the same lines.
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Buyers dismissed three-digit increases out of hand, and many expected a much easier ride when it came to settling the month. Much depended on the grade of PE or PP in question.
Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) are particularly tight, and some sellers say they have already sold an unusually high proportion of their availability for August, particularly for fractional melt index LDPE and C4 (butene-based) LLDPE.
HDPE BUYERS RELAXED
High density polyethylene (HDPE) buyers are much more relaxed than their LDPE and LLDPE counterparts, and many do not expect to be paying even the €40/tonne increase of the ethylene contract price.
"I will target a rollover," said one, "but in reality I may have to accept a €20/tonne increase in PE [HDPE] and €30/tonne in PP."
However, for the moment, such increases are not on offer from any supplier.
The main sticking-point for suppliers seeking increases was the holiday season in Europe, mainly in southern Europe.
Spot markets were patchy. Sellers were looking for higher prices and they sometimes got them, but activity was slow.
"My buyers are saying they can buy expensive tomorrow so why buy expensive today," said one HDPE trader.
"Demand isn't there but things have tightened up a bit," said a PP reseller.
Most buyers acknowledged that they would have to pay more if they wanted to settle early in the month, however. "Unfortunately I have to buy in August, but I will try to buy as little as possible," said one LDPE LLDPE buyer.
"We don't really want to pay more than €30/tonne [up]," said a PP buyer, "but it will be something if I can get only €40-45/tonne."
"We will have to accept something in August," said another PE PP buyer, "unless we see naphtha hit the deck."
Naphtha prices were trading at $884-886/tonne CIF (cost insurance freight) NWE (northwest Europe), and cracker margins were adversely affect-ed by the second consecutive €250/tonne drop in the co-cracker product butadiene (BD) contract price.
Some producers were already talking about increases in the September monomer contracts, only days after the settlements of the August monomer contracts. Some buyers put this down to pressure from suppliers, encouraging increased buying ahead of what would be another upward push if monomer contracts rose again in September.
Many sources saw activity in the polyolefins markets at the beginning of August as positioning, and buyers who can wait are expected to wait for as long as possible.
"I expect things to change at the end of August," said one reseller, "when we see how many orders they [producers] have."
TIGHTNESS TO CONTINUE
Even if orders fall short, however, producers in the LDPE and LLDPE sectors expected to be able to foist increases onto their buyers. A series of planned maintenance shutdowns in September and October were expected to maintain tightness, particularly in LLDPE.
Port congestion in Saudi Arabia was also contributing to tight availability.
PP tightness was patchier, with a couple of cases of force majeure having had some impact on the market, and some grades were tighter than others.
Settlements were widely expected to take longer than usual in August. Demand would be slower because of holidays and the economic situation in Europe was still affecting sentiment and credit lines, leading to caution on all sides.
"I am getting plus €50-60/tonne now but I don't know if I will still be getting that by the end of the month," said a distributor, which felt that the level of demand in August was crucial to pricing.
Large accounts were in general waiting before they settled August, but it was clear that buyers that had to buy in the early days of August would have to pay a hefty hike if they wanted to get their product.
LDPE spot prices are trading at €1,330-1,360/tonne FD (free delivered) NWE (northwest Europe) and PP homopolymer prices were at €1,250-1,300/tonne FD NWE, both on a net basis.
Quote: "Unfortunately I have to buy in August, but I will tryto buy as little aspossible" LDPE/LLDPE buyer
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