FocusEurope PE, PP buyers warn of bubble on talk of big Sept hikes

30 August 2013 09:48  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--Polyethylene (PE) and polypropylene (PP) buyers are concerned the current upward price momentum that suggests big hikes in September could lead to a crash in subsequent months, and they are keeping a close eye on stock, several said on Friday.

“They [producers] are all expecting us to restock in September but we could be looking at three-digit drops by October,” said one buyer.

“We’re buying in a bubble and will be very cautious.”

“We are bracing ourselves for a hike in September, but what next?” said another, who feared that the naphtha price could fall as sharply as it has risen. “It’s a time for stout hearts and clear heads.”

The market was still waiting for the settlement of the September ethylene and propylene contracts, which would give some direction for September polyolefin pricing, but talks were prolonged as crude and naphtha prices surged on talk of a US-led military strike on Syria.

A wide price range is being discussed for September ethylene in the PE market, with increases of €60-100/tonne said to be possible. Propylene players also spoke about the possibility of a significant increase.

The main fear of polymer buyers was to be holding too much high-priced stock in such an uncertain situation. Buyers argued that naphtha prices could drop just as quickly as they have risen.

Both producers and converters have low inventories and the upward momentum building for September pricing is unlikely to change in the coming days.

One PE producer has already outlined plans for September pricing and talked of a €150/tonne ($197/tonne) increase. This was considered to be too high by most of the market, however.

Most producers were waiting for the outcome of the monomer negotiations before announcing pricing ideas for September polyolefins, but expectations were for more modest increases.

Converters acknowledged the almost inevitable trend for September pricing, and questioned only the magnitude of a hike.

“We can’t argue with the monomer [increase in line with monomer increase],” said a PP buyer, but most expected to be able to limit any rise at that level, arguing that they had their own margins to look after and warned of a deeper price cut once naphtha dipped again.

Most market sources saw the current naphtha trend as a temporary spike.

There was a silence from many traders who kept whatever stock they had for September, and the spot market showed no significant sign of pre-buying. Spot prices were slightly higher, but there was no evidence of any big increases.

Several buyers said it was more advantageous to buy contracted volumes from producers rather than spot lots from traders at present.

Low density polyethylene (LDPE) was trading around €1,350-1,380/tonne FD (free delivered) NWE (northwest Europe) on a net basis, from a level of €1,280/tonne FD NWE in the middle of July.

PP homopolymer injection prices were hard to peg as there was so little spot activity, but the most recent sales were said to be around €1,280/tonne FD NWE. It was trading at €1,200/tonne FD NWE in mid-July.

($1 = €0.76)

By: Linda Naylor
+44 20 8652 3214

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