FocusEurope PE cutbacks lead to tight market

13 November 2013 11:44  [Source: ICIS news]

By Linda Naylor

PELONDON (ICIS)--Polyethylene (PE) cutbacks in Europe are leading to tightness in some grades and the closing of order books, sources said on Wednesday.

“We are adjusting operating rates for PE,” said a source at Dow. “We have closed our LDPE [low density polyethylene] order books, and will most likely close our LLDPE [linear low density polyethylene] order books at the end of the week.”

On Tuesday, Dow announced it was temporarily shutting its Tarragona cracker in Spain because of “challenging market conditions and an unclear demand picture for PE”.

LyondellBasell’s LDPE production at Aubette in France is also experiencing production problems, according to buyers, adding to tightness in this sector.

LyondellBasell does not comment on the status of its operations and it was not clear whether the plant’s current problems were linked to a lightning strike at the end of July that led to a declaration of force majeure on LDPE from the site.

Although buyers said they had no problem sourcing LDPE elsewhere, spot product is becoming increasingly unavailable.

Spot sellers have been finding it hard to sell big LDPE volumes in November as many buyers are sticking with their regular suppliers to ensure they achieve extra discounts when they reach pre-agreed volumes. Spot sellers, however, do not have that much material to sell.

Spot PE business in general has been flat in November.

“People don’t really trust in [December] increases,” said a trader. “Whoever had to buy bought at low prices early in the month.”

There have been reports of possible price increases in December, and November contractual buying has not been bad in the light of this, but expectations of a significant increase are not high.

High density polyethylene (HDPE) availability is not as tight as LDPE, and imports are playing an increasingly important role in this sector.

There is a lot of speculation over how an increase of import duties in January 2014 will affect the behaviour of Middle Eastern suppliers. Duties from countries in the Gulf Cooperation Council (GCC), among others, will increase from 3% to 6.5%.

Both HDPE and LLDPE imports constitute a large part of the European market, with sources estimating that LLDPE C4 (butene-based) will cover as much as 90% of European volumes.

Imports of HDPE are lower than this, but several European HDPE plants are closing, or have closed, in the face of increased competition from low-cost imported product.

Crackers are estimated to be running at around 80% of capacity in Europe. Crackers were running at their lowest point in 2013 in May, when sources estimated their output to be as low as 70%, as PE demand was weak.

It was at this point that the market turned, when buyers scented the bottom of the market and returned to buy, leading to an upward trend that lasted for four months.

LDPE spot prices are now around €1,270-1,300/tonne FD (freed delivered) NWE (northwest Europe), up by around €20/tonne at the end of October.

Such a limited upward move on the spot market does not suggest that buyers expect a substantial increase in December pricing, but many are beginning to look at January. PE prices have risen in January for the past five years, and some buyers expect a similar move could occur again in 2014.

Relative stability in naphtha pricing and fundamentally flat demand in the PE sector could have a hampering effect on any attempt by suppliers to improve margins, but all sources, both buyers and sellers, keep careful control of stock levels.

This has been a feature of the PE market in 2013 and sources expect this, coupled with reduced output in Europe, to continue throughout 2014.

($1 = €0.74)

By: Linda Naylor
+44 20 8652 3214

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