FocusEurope K 2013 mood positive but PE, PP buying still cautious

01 November 2013 11:37  [Source: ICIS news]

By Linda Naylor

Plastics are main derivatives for olefinsLONDON (ICIS)--Polyethylene (PE) and polypropylene (PP) players have been pleasantly surprised by the positive atmosphere of the 2013 K fair that ended in Dusseldorf, Germany, last week, several said on Friday, but buying remains cautious as future pricing is unclear.

On Tuesday 29 October, both ethylene and propylene contracts settled at a reduction of €30/tonne ($41/tonne), and while November PE and PP business is far from settled, there is a general expectation of a reduction in line with the monomer drop.

Some sellers still hold on to the hope that they might be able to retain a portion of the decrease but many buyers are confident of the full drop.

“I have been assured I will get the full €30/tonne by most of my suppliers,” said a PE buyer.

“We are going for a rollover,” said a PE producer. “We have to repair margins.”

PE prices fell by around €50/tonne in October, although some October business is still being discussed as buyers are looking for more. This decrease was more than the €35/tonne drop in the October ethylene contract price; so many sellers are keen to maintain their reduced profit margin in November.

PP prices fell by more or less the €40/tonne drop in the propylene contract.

Whether sellers can keep some of the monomer drop in November depends on the level of demand, and views on this are mixed.

“September demand was poor,” said another producer. “October was better but not brilliant.”

November volumes are often low, as some buyers aim for low stocks by the end of the year. Some of those whose financial year-end does not fall in December, however, are planning to take on a little extra stock in case prices increase in January, as they have done in the past five years.

Production is running at reduced rates, with crackers running at 80-85% of capacity. Many polymer players say production must continue to be cut long-term to accommodate reduced demand in Europe.

Several older PE units in Europe are being closed, but these are not expected to impact the market in any way as new capacity comes on stream in the Middle East and shale gas exploration leads to added capacity in north America.

European PE closures 2012-2015

Company

PE grade

Location

Capacity/,000 tonnes

Status

Date

Dow

HDPE

Tessenderlo, Belgium

190

Closed

End 2012

Versalis

LLDPE

Priolo, Italy

150

Closed

Sep 2013

LBI

HDPE

Wesseling, Germany

100

Closed

End Q3 2013

Eni

LDPE

Gela, Italy

150

To close

End 2013

Borealis

HDPE

Burghausen, Germany

175

To close

End 2014

Total

HDPE

Antwerp, Belgium

70

To close

End 2014

Repsol

HDPE

Puertollano, Spain

90

To close

2015

Taking on extra volumes in November will help reach year-end rebates and give a cushion against any possible price hike in January, say some buyers, even if the current feedstock trend and final demand in polymer markets are not looking that propitious for a big price hike at the beginning of 2014.

Spot PE and PP prices are rising very cautiously as many producers have withdrawn from the low-priced spot market.

“We are not offering spot for November,” said a major producer. “Why would we? Our order intake for November is strong. FCA (free carrier alongside) prices were at €1,200/tonne, but that’s not there anymore.”

Low density polyethylene (LDPE) spot prices are trading around €1,260-1,280/tonne FD (free delivered) NWE (northwest Europe), while PP homopolymer injection prices are around €1,200/tonne FD NWE and above.

Many players think that current and recent trends in PE ad PP pricing are based on stock shifts rather than on fundamental supply and demand elements and most sources expect it to carry on this way for some time.

Buyers and sellers will continue to keep a close eye on stocks, as neither intends to have a warehouse full of expensive material in a potentially falling market, and they’ll also be looking at upstream naphtha movements, as a sharp rise or fall there can mean big changes in the polymers sector.

November pricing will come under discussion in the coming days, and a public holiday in much of Europe on 1 November will delay things a little, but players are expected to remain cautious, in line with buying behaviour throughout 2013.

($1 = €0.74)


By: Linda Naylor
+44 20 8652 3214



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