Europe PE buyers increasingly concerned over hike in 2014 duties

12 December 2013 11:08 Source:ICIS News

LONDON (ICIS)--Polyethylene (PE) buyers in Europe are concerned over the effect of a duty increase in imports from, among others, GCC (Gulf Cooperation Council) countries on 1 January 2014, which could lead to record high prices in some PE grades, several said on Thursday.

GCC countries include Saudi Arabia, Qatar, Kuwait  and the United Arab Emirates (UAE) – established PE exporters to Europe. The current import duty level for such importers, including also Brazil, is 3% but this will be raised to 6.5% next year.

Several sellers have been loath to say what their plans are for January, as they watch each other to see how they will act under the new system, when the increase takes effect, but some large buyers have been voicing their concerns.

“I don’t think we will be able to dodge the duty,” said one large buyer.

“Nobody knows yet what will happen,” said another, “but in theory prices will increase by 3.5%.”

“Nobody is making any money in this market and producers won’t waste the chance [of increasing prices].”

“My suppliers haven’t said a word yet,” said yet another.

Sellers were thought to be caught between concerns of losing market share by going it alone to catch the extra 3.5 percentage point increase, and leaving potential margin on the table.

One of the buyers indicated that the first to push for the increase would be the one to lose most.

Linear low density polyethylene (LLDPE) buyers are the most concerned, as an estimated 90% of C4 (butene based) LLDPE used in Europe is imported, mainly from the affected regions. While some did not expect much of a change immediately, there was an expectation that the 3.5 percentage point increase could be absorbed into European pricing by the second quarter of 2014.

High density polyethylene (HDPE) buyers were less concerned. New capacities in the Middle East, coupled with ample supply in Europe, left them very relaxed.

“I don’t think we will be under any pressure to pay more,” said one large buyer, “but in the end it will be supply and demand that determine pricing.”

One polypropylene (PP) producer made it very clear that it would be targeting higher prices in January, based on the duty increase.

“We [PP producers] don’t have the cost advantage of the PE producers,” it said.

Imports play a much smaller role in the PP sector than in PE, and buyers expected the new January prices to be in line with prevailing market pricing.

PE and PP prices have been increasing in December, largely in line with the rise in the December monomer contracts, and some sources expect a further upward push in January as margins remain low at the cracker.

The direction of January monomers is not yet clear. The main driver, naphtha, has been trading at higher levels in December, but has recently eased back a little. PE and PP producers argue that current cracker levels are not sustainable and olefin and polyolefin production is expected to remain cut in 2014 to accommodate lower demand.

($1 = €0.73)

By Linda Naylor