04 December 2013 11:33 [Source: ICIS news]
LONDON (ICIS)--European polyethylene (PE) and polypropylene (PP) players are increasingly discussing how the hike in import duty rates from GCC (Gulf Cooperation Council) countries among others, including Brazil, will affect pricing when it takes place in January 2014, several said on Wednesday.
The duty will rise from its current level of 3% to 6.5% on 1 January and there is a certain amount of disagreement over who will take the bigger hit, the seller or the buyer.
“We don’t intend to absorb the extra 3.5% in January,” said one PP producer.
“The market is still scanning what’s happening first and mostly what will happen in January,” said another PP/PE seller who did not want to swallow the extra 3.5 percentage point increase next month.
PP sellers argue that costs of PP production in the Middle East are higher than PE production costs, and that the increase in import duty will have to be passed on to the buyer.
Linear low density polyethylene (LLDPE) buyers are more concerned than their counterparts in the high density polyethylene (HDPE) sector, as around 90% of LLDPE C4 (butene based) is imported into Europe, mainly from the Middle East.
Some buyers expect LLDPE C4 prices to move up in line towards the low density polyethylene (LDPE) price throughout 2014 because of the duty increase in January. LDPE currently commands a premium over C4 LLDPE.
HDPE buyers were far more sanguine.
“If prices go up in January, is it because of [high] naphtha [costs], tight availability, import duties? It is a market price, that’s all,” said one large buyer.
“ It [import duty] will disappear into the market price. If less material is coming into Europe because [Middle Eastern] producers don’t think it’s worth it, then prices will go up. The market will correct itself,” he continued.
“They don’t sell on cost. Maybe prices can keep up if Middle Eastern producers have no incentive to sell to Europe, but that’s all.”
One seller into Europe was concerned that other importers with advantageous duty rates, like South Korea, would take a larger market share.
“It all comes down to the prevailing market price,” said another buyer.
Demand in Europe remains flat, in spite of a bit of a spike at the end of the year as buyers ensure end-year rebates based on volume, and those with spare cash and financial year-ends not in December take on some extra stock as naphtha prices soar.
Higher naphtha prices are leading to expectations of another upward move in January, following the €30/tonne ($41/tonne) increase in December ethylene and propylene contracts.
Naphtha closed at a 10-month high on Tuesday 3 December, at $982-984/tonne CIF (cost insurance freight) NWE (northwest Europe).
LDPE net prices are trading at a minimum of €1,300/tonne FD NWE, from a low of €1,260/tonne FD NWE in early November.
PP homopolymer injection net prices have been slower to move and are currently trading at €1,220-1,250/tonne FD NWE, from below €1,200/tonne at the beginning of November.
HDPE net prices have been very flat, but have moved up by around €20/tonne, to €1,230/tonne FD NWE.
Production remains cut back throughout Europe.
($1 = €0.74)
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