Price and market trends: Europe PE, PP import duty weighs on market sentiment

13 December 2013 15:04 Source:ICIS Chemical Business

The duty will rise from its current level of 3% to 6.5% on 1 January. Who will take the bigger hit – the seller or the buyer?

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.

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.

LLDPE BUYERS CONCERNED
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 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.

The 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 said.

“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 worried that importers with advantageous duty rates, like South Korea, would boost its 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 3 December, at $982-984/tonne CIF (cost insurance freight) NWE (northwest Europe).

By Linda Naylor