16 October 2013 12:22 [Source: ICIS news]
By Linda Naylor
LONDON (ICIS)--Polyethylene (PE) buyers are acting with extreme caution and the outlook is very uncertain, several said on Wednesday, as the 19th international trade fair for plastics and rubber, K2013, opens its doors in Dusseldorf, Germany.
The fair, which takes place every three years, runs until 23 October and hosts visitors from all over the world. According to the organisers it is the largest fair of its type in the world.
European PE buyers are approaching the event cautiously, having seen October prices dip for the first time this year since May. October pricing is not settled yet in most cases, but the majority of buyers see the €35/tonne ($47/tonne) drop as a given in monthly pricing and are targeting a larger decrease.
The main focus of the market was naphtha, the principal driver of upstream ethylene, as players attempted to get some visibility into November pricing.
Most were unable to fathom recent movements in the naphtha market, which saw prices fall below $900/tonne CIF (cost, insurance and freight) NWE (northwest Europe).
During the week ending 4 October, naphtha traded as low as $886.50/tonne CIF NWE, only to close at $911-913/tonne on Tuesday 15 October.
Late on Wednesday morning it slipped back to $909-910/tonne.
Such volatility has put a brake on PE buying in Europe, and even the smallest buyers now look to naphtha for an indication as to where PE prices will go.
With an upward trend in the naphtha sector, producers’ margins will be affected, and players expect them to cut back output.
September PE demand was weak, and while stronger volumes are being lifted in October, buyers suspect that producers’ stocks are not as low as they were.
“Nobody will be putting material into stock,” said a buyer in Dusseldorf, “there is still time to build some stock.”
A trader, however, was now finding it hard to replace depleted stock levels at the price it had paid only a couple of weeks before.
“My seller has increased my price by $50/tonne since the last time I bought,” it said from K2013, adding that the increase was down to higher naphtha prices.
Also to be taken into account, said another buyer, was the “K effect”. Prices have often fallen very quickly during the week-long K fair, as buyers drift from producer to producer and trader to trader, looking for the best deal. This is more relevant for spot buyers and importers rather than regular European business partners.
Spot PE prices have already fallen since September, but the fact that traders are unable to replenish stocks at workable prices, and naphtha is so uncertain, means that buying in this sector is also limited and sellers are not willing to drop prices too low in case they rebound quickly.
Many buyers expect PE producers to cut back production if naphtha continues to rise as their profitability will be compromised.
The uncertainty that is a major feature of the European PE market at present stems from the situation where nobody, either buyer or seller, want to hold high-priced stock in a potentially falling market, but players are also concerned that they may face a sharp upturn.
“Never clutch a falling knife,” said one buyer, while others were already talking about the possibility of a turnaround if naphtha continues to rise.
“I don’t think prices will fall massively,” said a seller of imported PE, “but it’s all very fragile for the time being.”
Low density polyethylene (LDPE) spot prices were in a very wide range, to the mid-€1,200s/tonne FD (free delivered) NWE, but with many sellers still selling as high as €1,300/tonne FD NWE at small accounts. In mid-September many LDPE prices were above €1,400/tonne on a net basis.
“Let’s see what happens at K,” said one of the buyers. “We could see different prices on Monday than today.”
($1 = €0.74)
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