23 September 2013 12:03 [Source: ICIS news]
By Linda Naylor
LONDON (ICIS)--Polyethylene (PE) buyers in Europe have become very cautious following a strong start to the month, as many are confident that prices are at the top of the current cycle, several said on Monday.
“We have reached peak pricing in September,” said one large buyer.
“Whichever way you look at it, I won’t be paying more in October than September,” said another.
“The wind has changed,” said yet another who had received calls from peripheral sellers that had been silent in recent weeks.
Buyer expectations that, at worst, PE pricing will roll over in October are based on a lower ethylene contract in October. But PE producers are not at all convinced that the monomer contract will go down next month, in spite of falling naphtha prices and a stronger euro rate versus the dollar.
Buying was strong in early September as tensions in the Middle East were high, but as fears of a US-led military attack on Syria receded, crude oil and naphtha prices also eased, and PE buyers have retreated and begun using stocks.
Naphtha rose to $967/tonne CIF (cost insurance freight) NWE (northwest Europe) in early September but on Friday 20 September closed at $911-913/tonne CIF NWE.
PE producers in general do not expect much of a reduction, if any at all, in the October ethylene contract, however.
“We are working on a rollover [ethylene contract] for next month,” said one large producer.
“Cracker margins are better than July and August, but they are worse than the yearly average,” said another.
Buyers’ inventories are thought to be more comfortable than they were, and producers’ stocks are likely to have risen slightly from their very low August level, as demand has dipped in the second half of September.
Inventories have been under such close scrutiny in past weeks, however, that some buyers do not expect much change in PE pricing, particularly in the low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) sectors in October, even if the ethylene contract is settled lower.
“I don’t think the producers will just simply hand it [ethylene reduction] over,” said another large PE buyer, “but we need to see that we don’t get caught out with expensive polymer.”
Inventory control at all levels in the chain has been a feature of the PE market in 2013.
Upstream uncertainty has meant that both buyers and sellers take great care not to be saddled with high-priced inventory in a potentially falling market, but this has also led to swift tightening in some PE grades when demand has picked up, or production hiccups have arisen.
LDPE and LLDPE grades are still on the tight side in Europe, while high density polyethylene (HDPE) is more widely available.
LDPE spot prices have dipped slightly, reacting to lower naphtha pricing and dwindling expectations of further upstream price hikes. On Friday they were trading around €1,380/tonne FD (free delivered) NWE, while levels of above €1,400/tonne FD NWE had been attainable in early September.
LLDPE C4 (butene based) spot prices also dipped from former levels of €1,360-1,380/tonne FD NWE, and were now around €1,340-1,350/tonne FD NWE.
Monthly prices have risen by a minimum of €50/tonne in September, in line with the rise in the September ethylene contract.
The focus of attention is now on where the ethylene contract will settle, and this should be known in the coming days.
PE is used widely in the packaging and household goods sectors and also in the agricultural sector.
($1 = €0.74)
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