Price and market trends: Europe PE, PP players expect little improvement

17 January 2014 09:39  [Source: ICB]

Hikes in duties on some imports from 3% to 6.5% will put buyers under pressure in January

The year 2013 was fairly flat for polyolefins with positive growth arriving only towards the end of the year, and even then sources acknowledge that fundamentals remained weak.

European naphtha-based players struggle to compete with low-production from the Middle East and, imminently, from North America, where shale-derived ethylene production costs are low.

Several older European polyolefins plants have closed or are earmarked for closure in the next couple of years, while Switzerland-headquartered INEOS will import shale-derived ethane into specific plants in Europe.

Polyethylene (PE) and polypropylene (PP) buyers are paying higher prices in January, but the level of increase is not yet clear and in some sectors there is no rush to buy as buyers watch upstream price movements stall, sources said on 13 January.

January monomer contracts increased, with ethylene taking a €15/tonne hike, and propylene €20/tonne. Most of the contention over January PE and PP pricing is over how much, or sometimes whether, polymer prices will rise above the monomer.

“Anything above the monomer is unrealistic,” said one large PE buyer. “Naphtha and crude are going down.”

Another said: “It’s difficult to come to a conclusion so far over where prices will land in January. The monomer [increase] is a given. For the rest we will have to wait until the end of the month.”

Opinions over the level of demand in Europe also diverged. One large PE producer said its demand was beyond all expectations while another described January offtake so far as poor.

There is less discord in the PP market, where most players see demand as steady and supply in line with demand, with sporadic pockets of tightness.

In spite of a force majeure from Total’s Gonfreville site in France, and tight availability with some sellers on a series of minor problems, including propylene availability issues, there is no panic as buyers face increases.

“Nobody is under pressure to buy more than they need, but sellers are also not in a position to have to push product onto the market,” said a trader.

“Nobody is looking at Feb and thinking prices will go up,” said another buyer.

How much more than the ethylene contract PE buyers will have to pay depends on the sector they are in, sources agreed.

Low density polyethylene (LDPE) and some C4 (butene based) linear low density polyethylene (LLDPE) grades are tight and pressure to pay more than a €15/tonne increase in these fields is strong. Some producers have targeted a €50/tonne hike, and buyers acknowledge they may have to pay close to this to get all they need.

Spot LDPE prices have risen to €1,350-1,370/tonne FD (free delivered) NWE (northwest Europe), from €1,300/tonne at the beginning of December.

C4 LLDPE spot prices are now at €1,300-1,310/tonne FD NWE, from a low of €1,260/tonne at the beginning of last month.

High density polyethylene (HDPE) buyers remain the least convinced that they will be paying more, if anything at all, above the €15/tonne increase in the January ethylene contract.

HDPE is affected by new plants in the Middle East, and while some buyers were expecting to pay increases for this product in January, mainly because of the 3.5 percentage point increase in the import duty imposed earlier this month, others said they had been offered rollover pricing for January. The import duty issue is one that is expected to rumble on for some time.

An increase in import duty from established importers in the Gulf Cooperation Council (GCC), imposed from 1 January 2014, is a new element in the European market that could also add pressure for buyers. The duty has risen from 3%, to 6.5%.

PP spot prices have also increased, having languished for some time around €1,210-1,220/tonne FD NWE on a net basis. Offers were now as high as €1,300/tonne for homopolymer injection but it is not clear how much business is being done at this level.

Meanwhile, increases on monthly contractual business are seen at €30-40/tonne in some cases.

One large seller saw expectations of only a €20/tonne increase for January PP as unrealistic and wishful thinking from buyers, saying if it were to offer a €20/tonne increase to the market, “customers would snatch our hand off.”

“We haven’t settled yet,” said a large PP buyer, “and we are not seeing any supply issues, but we know it [price increase] will be more than monomer.”

For 2014, most sources expect little change from 2013, and for PE and PP prices to follow upstream crude and naphtha prices. Production is expected to be cut back to meet demand, and by the end of the year, players will be weighing up the effects of Borouge 3.

In mid-2014, new PP and PE capacity is coming on stream in Ruwais, Abu Dhabi. The project, entitled Borouge 3, includes an ethane cracker, two Borstar PE units and two Borstar PP units as well as a LDPE unit. The PP unit will have the capacity to produce 960,000 tonnes/year.

Such an increase in capacity cannot but have an impact on polyolefins globally.

By: Linda Naylor
+44 20 8652 3214

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