FocusEurope upward pressure on PE buyers gains momentum

12 August 2013 11:49  [Source: ICIS news]

By Linda Naylor

PressureLONDON (ICIS)--The upward pressure that European polyethylene (PE) buyers have been facing since the settlement of the August monthly ethylene contract at a €40/tonne ($53/tonne) increase has been building, sources said on Monday.

Many accounts are still not finalised, as retroactive pricing remains a feature of the PE market in much of Europe, but buyers admitted they were under pressure to pay more.

“I can see myself paying as much as €60/tonne [increase],” said one buyer.

“By the end of the month I can see them implementing €50/tonne [up],” said another.

The amount of increase being sought in August depends largely on the PE grade and the supplier in question. Dow had initially targeted a €100/tonne increase over July pricing and another producer echoed this aim. Others were looking for to recover the monomer hike plus a margin of €10-20/tonne.

One of these made it clear that this “special offer” would not be available for the whole of the month, however.

Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE), especially C4 (butene based) grades, were tight, and it was in these sectors that sellers exerted most pressure.

“Big suppliers are looking for a minimum of €40/tonne plus €10-20/tonne,” said another buyer, “and there is not good availability of C4 [LLDPE].”

LLDPE C4 spot prices have increased to above €1,300/tonne FD (free delivered) NWE (northwest Europe) from €1,260/tonne FD NWE in July. One buyer complained that it had been offered a spot price of €1,360/tonne FD NWE by a non-regular supplier who was taking advantage of the tightness in the market.

“There aren’t many options if you need more material,” said another C4 LLDPE buyer.

“There is one alarming concern that if the market comes back in September, as it traditionally does, there won’t be enough material,” the buyer continued.

LDPE net price levels are as high as €1,350-1,360/tonne FD NWE from a low of €1,280/tonne FD NWE at the end of July.

Spot activity is steady but spot sellers say there is no panic buying, in spite of the upward price trend.

High density polyethylene (HDPE) is not as robust as LDPE and LLDPE, but here too there is pressure on buyers to pay more in August, in spite of holidays taking place in parts of Europe.

HDPE availability has tightened in recent weeks and some buyers are witnessing pockets of near shortages in some regions.

“We had problems, especially in Iberia,” said one HDPE. “We were able to back up with another supplier, and in the north we have had no problems.”

“I think it’ll be the monomer [€40/tonne increase],” said another HDPE buyer who had not yet settled.

Availability of LLDPE and HDPE in particular were affected by port congestion in Saudi Arabia. Fewer working hours during Ramadan and issues with truck deliveries were hindering exports. Export figures showed a significant reduction in exports of LLDPE into Europe on 2013.

PE production in Europe has been cut back for months in line with weaker demand that showed an upturn in May as prices reached the bottom of the cycle. Volumes have been sustained since then, but producers maintain steady control of supply, and often only produce in line with orders taken.

Some unplanned supply issues have tightened availability, forcing higher prices onto buyers.

A power outage caused by a lightning strike on 29 July led LyondellBasell to declare force majeure on some LDPE grades from its Aubette site in France, according to buyers who said restrictions were still in place.

Upcoming planned outages are also expected to maintain tightness in the PE market.

The prospect of an increase in the September ethylene contract was also adding to pressure in the market. While some PE buyers saw little reason for another upward move in the monomer contract, some monomer sellers complained of poor cracker margins as butadiene (BD) prices collapsed.

It was too early to tell where the September monomer contract would land, and at least one producer said BD should not affect monomer in the PE and polypropylene (PP) markets.

“Let the BD market look after itself,” said one.

Naphtha was also adding to upward pressure and on Monday was trading at $903-905/tonne CIF (cost insurance freight) NWE, steadily rising from its low of $875/tonne CIF NWE during the week ending 26 July. In mid-to-end June it had traded as low as $821/tonne CIF NWE.

Italian PE producer Versalis will close its LLDPE production at Priolo, Italy, in September, as planned and Eni’s Gela, Italy, LDPE production is also slated for closure. Several HDPE plants are also to be closed as European producers get rid of old capacities in the face of low-cost PE production in the Middle East and the US.

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

($1 = €0.75)

By: Linda Naylor
+44 20 8652 3214

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