FocusEurope PE, PP sellers prepare market for more hikes in Sept

23 August 2013 12:08  [Source: ICIS news]

By Linda Naylor

EuroLONDON (ICIS)--Polyethylene (PE) and polypropylene (PP) suppliers in Europe are preparing their buyers for price increases in September – following €40-60/tonne hikes in August – even before many PE settlements are finalised, sources said on Friday.

There were widespread expectations of an increase in the ethylene and propylene monomer contract for September, based on tightness, high feedstock costs and unsatisfactory cracker margins, according to producers. 

A wide price spread was mooted for increases, with sources generally talking a minimum hike of €20/tonne ($27/tonne) next month, and others hoping for a €60/tonne hike.

Several polyolefins producers have made it clear that they will also be targeting margin improvement, so will be announcing a higher increase for PP and PE than any rise in the monomer contracts.

Buyers recognise the need for sellers to recover their costs, but they are doubtful that they will be paying any more than a monomer increase in September.

“Stocks are below target and demand is good,” said a PP producer. “Margins are still not satisfactory though.”

“What about our margins?” retorted a large PP buyer. “Can demand sustain this?”

“It’s hard to argue that they shouldn’t pass through the monomer increase,” said another who nevertheless did not expect to be paying anything on top of the monomer settlement.

The PP supply/demand situation was widely considered to be balanced to tight, with some grades less available than others.

“The only grades I can get hold of are those I don’t want,” said a trader.

PE producers were even more bullish as inventory levels are very low across the board and demand was looking strong for September.

“We are experiencing our strongest order intake this year for September,” said one producer, who went on to say it would be looking for a three-digit increase for September PE.

Another producer had been heard mulling over a €100/tonne hike for next month, on both PE and PP. Others were talking more modest rises, of €20-30/tonne above any increase in the monomer contract settlements.

Buyers have been careful not to build stock of most PE grades and if demand returns strongly in September, producers could have an easy run when it comes to price hikes. Most buyers did not expect to be paying increases of anything like three digits.

A very limited number of desperate spot buyers have been forced to pay higher prices from suppliers, much higher than their current net contracts.

“These numbers don’t reflect the fundamentals of the market,” said one such buyer, who had had to accept a price over €100/tonne above its contract price for a spot parcel. “It will backlash like hell when it turns.”

Stocks are low, demand has improved, there are fewer imports as Saudi Arabian ports remain congested, and there is a slew of planned cracker shutdowns due in September/October.

Many sources question how long the European polyolefins industry can run at reduced rates in the face of low-cost production increasing elsewhere, but for the time being, the ball seems to be in the producers’ court.

Low density polyethylene (LDPE) spot prices are now trading in the high €1,300s/tonne FD (free delivered) NWE (northwest Europe) in some cases, and PP homopolymer injection is trading at around €1,270/tonne FD NWE on a net basis.

($1 = €0.75)

By: Linda Naylor
+44 20 8652 3214

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