09 May 2014 18:44 [Source: ICIS news]
LONDON (ICIS)--European polystyrene (PS) negotiations for May contracts are ongoing and price ideas are mixed, with some initial contract settlements for May deliveries increasing by €20-30/tonne.
European sellers had initially targeted increases of €30-35/tonne in May, due to styrene costs rising €20/tonne in the month, as well as expectations of improving demand and the need for margin improvement.
Sellers generally expect demand levels in May to match or exceed April levels due to the start of the summer peak demand season. Most expect offtake to grow through the month.
Nevertheless, one sell-side source said that its initial bullishness is fading as offtake in May now looks similar to April levels. Traditionally, demand in May is about 8% higher than in April.
“Demand is comparable with April, so far not the higher demand we expected," the source said. "It is fairly calm, although it should be peak season.”
Buyers expect May demand to be in line with April, or weak, and none said demand is strong. Furthermore, buyers generally balked at the size of sellers' planned price hikes, saying that increases of €20/tonne appear to be the ceiling. Buyers indicated difficulty in passing on price increases due to increasing interest in product substitution because of the relatively high price of PS.
“I don't think [producers] will get any margin improvement this month. Demand is weak across the board," one buy-side source said. "There is plenty of product from outside Europe. We’re not rushing to discuss with [European PS producers]."
Another buyer said: “My general feeling is that if [producers] get €20/tonne [increase] they'll be lucky.”
Some buyers said that they are turning increasingly turning towards imported material due to the competitive cost advantage. One buyer in southern Europe noted that the percentage of its volumes ordered from outside Europe has grown through the year and currently stands at about 50%. Furthermore, it said that European PS prices are too high and if prices do not fall to a level that is competitive with imported material costs, it will continue to buy greater volumes from overseas.
Several distributors also indicated that price increases of above €20/tonne seem unlikely to be accepted by buyers. Furthermore, some distributors believe that sellers are unlikely to stick to their initial price hike targets and are far more likely to seek to secure volumes at a lower price rather than risk losing volumes for the sake of only a small amount of margin improvement.
Several sellers and distributors noted that buyers are using the spectre of cheap imported material to try and mitigate price increases but indicated that this argument is not valid, as the quality and volume of imports is not sufficient to satisfy domestic demand.
One seller, however, said that it was concerned by the level of cheap imports, saying that it was not sure if the European PS market is growing or not, or if the growth is being absorbed by imported material.
The majority of sources expect May PS price ideas to be clearer next week as negotiations progress and more deals settle.
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