Lower Europe naphtha prices impact PE sentiment

17 January 2014 11:17  [Source: ICIS news]

LONDON (ICIS)--Polyethylene (PE) buyers in Europe are watching upstream naphtha movements keenly in an attempt to determine where prices might land in February, sources said on Friday.

On Thursday’s close, naphtha was hovering around the $900/tonne CIF (cost insurance freight) NWE (northwest Europe) level. Naphtha prices have been moving within a range of $900-965/tonne since the beginning of November, and movements have often been sharp.

The European naphtha differential over ICE Brent crude oil futures fell to a two-month low on a weaker Asian market, industry sources said on Thursday. The European February crack spread fell to minus $5.45/bbl on Thursday morning, down from minus $4.20/bbl on Wednesday morning.

The lower differential – or the 'crack spread' – is a sign that sentiment in the naphtha market is weak.

As PE prices are linked to naphtha, via the monomer ethylene, this recent price drop is attracting the interest of buyers who see it as a herald to lower prices in February.

Europe lower naphtha prices affect PE sentiment

“We will be taking the stock down,” said one PE buyer. “Nothing is in short supply. If prices follow naphtha, they will be down in February.”

A couple of producers said lower naphtha prices could lead to a mild decrease in next month’s contract, and PE buyers fully expect to be able to achieve a reduction in PE prices if this occurs.

Naphtha has been notoriously volatile, however, and some producer sources look at the monthly average when considering monomer prices, rather than the price of the day.

Spot PE prices are precarious in Europe on low demand, having risen in early January, and importers are not finding it easy to achieve the full 3.5% increase in import duty implemented on some importers on 1 January this year.

Players are expected to continue to keep on watching crude and naphtha as the month progresses.

LDPE spot prices are trading at €1,350-1,360/tonne FD (free delivered) NWE (northwest Europe) in mid-January.

By: Linda Naylor
+44 20 8652 3214

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