Price and market trends: Europe polyolefins players react to monomer declines

08 November 2013 10:00  [Source: ICB]

The gap between spot and contract prices is leading to heated discussions between buyers and sellers

Many end-month negotiations around October polyethylene (PE) pricing are well under way, and buyers’ dissatisfaction over the gap between some spot prices and their net contracted business is leading to heated discussions, several said on 31 October.

“If we don’t get a €100/tonne ($137/tonne) drop for October and November combined, we are paying more than the spot price,” said one buyer.

Spot low density polyethylene (LDPE) prices were as low as €1,220-1,240/tonne ($1,671-1,699/tonne) FD (free delivered) NWE (northwest Europe) in October but sellers are now reluctant to sell so low, sensing the possibility of an upturn in the coming weeks.

The buyer said its net price for contracted volumes would be above the low-end spot prices if it only managed to get a €50/tonne reduction for October.

Several PE buyers have confirmed business down by €50/tonne for October, with a couple at higher-priced accounts also saying they had managed to get a €60/tonne drop.

A linear low density polyethylene (LLDPE) buyer reasoned similarly when entering into lengthy discussions for the end of the month. It complained that smaller buyers could benefit from lower prices as they were more free to take advantage of spot prices.

LLDPE spot prices were trading in a very wide range throughout October, with a gap of as much as €90/tonne between the low and high end throughout Europe. This gap is now considered to be narrowing, and levels in the mid-€1,200s/tonne FD NWE are now seen as the norm.

SPOT NOT ALWAYS AVAILABLE
At the end of the year buyers have been used to being able to get extra spot volumes from their regular producer at lower spot prices, thus giving them a lower average price when taking contracted prices into account, but there has not been much of that this year.

Spot PE and polypropylene (PP) prices are rising very cautiously as many producers have withdrawn from the low-priced spot market.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 any more.”

End-month, or retroactive, discussions in the PE sector, and particularly in the LDPE and LLDPE markets, have been a feature of the market for many years.

Several producers have tried to take a pot shot at them, to end them, and have sometimes been successful in the short term. They have tended to drift back into the market once the supply/demand balance changes, however.

November pricing is now also being considered, now that the new ethylene contract has been settled. Most players expect a €30/tonne reduction, in line with the drop in the monomer contract.

On 29 October, both ethylene and propylene contracts settled at a reduction of €30/tonne ($41/tonne).

“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.”

The industry still runs at reduced rates, and most players expect this to continue as long as demand remains poor.

“The big issue in this market is we need better demand. That makes me more nervous than the €20/tonne or so in resin pricing,” said a converter.

Several large buyers said it would be hard to get much more than a €50/tonne reduction for October PE pricing. “What we saw earlier in October in the spot market was panic selling, that’s not happening any more,” said one.

November discussions are expected to get under way, but as usual in the PE market, they will be protracted as players position themselves in uncertain circumstances.

SOME PE UNITS CLOSED
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.

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.

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.

INVENTORY SHIFTS
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 itto 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.


By: Linda Naylor
+44 20 8652 3214



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