EPCA '13: PE, PP pricing turns after 4-month upward trend

06 October 2013 11:00  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--Polyethylene (PE) and polypropylene (PP) buyers are being offered lower prices for the first time since May following the settlement of upstream monomer contracts at lower levels, as players gather at the 47th annual European Petrochemicals Association (EPCA) meeting in Berlin this weekend.

Demand has slowed significantly after a short period of brisk activity in early September, when naphtha prices rose sharply on Middle East tensions, bringing spot polyolefins prices up in its wake.

Now that these tensions have eased, and naphtha prices have come down, PE and PP buyers no longer want to hold stocks as many of them are confident of prices falling further in November.

“Buyers think November will be lower. Naphtha is down and the dollar is down against the euro. There is only one direction for prices to go,” said a distributor. “Buyers are not buying and sellers are getting nervous.”

A large buyer said: “We’re already at the point where we know November will be lower than October.”

Producers’ inventories have increased from the low levels of August and buyers have been slow to commit in October so far. Production is cut back in Europe and some producers still describe their supply situation as balanced, in spite of an upturn in industry stock levels.

Many spot sellers are nervous.

“A lot of customers bought a lot of material because of the Syrian conflict,” said one.

“There has been a dramatic change of attitude in the market,” said another. “How can they [buyers] wait for so long before buying?”

A third one said: “It’s very very quiet,” said yet another. “Let’s see what happens, but I’m not optimistic.”

Spot prices were difficult to peg as there was a wide range for little business, but price ideas were falling daily.

Buyers’ confidence that prices would continue to slip into the fourth quarter was based on expectations of continued softness upstream, exacerbated by the weaker dollar/euro rate that gave European producers a cost advantage for naphtha, and the end of PE export restrictions in Saudi Arabia.

Some buyers expected October to see the backlog of delayed deliveries at some Saudi ports arrive in Europe, ending the last vestiges of tightness in the linear low density polyethylene (LLDPE) and high density polyethylene (HDPE) sectors in particular.

“Market sentiment is that prices will fall for sure more than just the monomer,” said a seller, “and this could be the trend throughout the rest of the year.”

European output is expected to remain under control, and inventory control on both the buy and sell side remains important, as neither buyers nor sellers want high-priced stock in a potentially falling market.

It is under these sort of circumstances that the trend can change quickly, on an unexpected plant outage, or unforeseen change in upstream pricing, when buyers come back to the market and product tightens quickly.

For the moment, however, European PE and PP markets are seen essentially as buyers’ markets, and it will take time for tightening to feature.  

($1 = €0.74)

By: Linda Naylor
+44 20 8652 3214

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