Europe PE buyers wait for May ethylene in cautious market

Focus article by Linda Naylor

LONDON (ICIS)–European polyethylene (PE) buyers are waiting to see where the May ethylene contract will settle to give a clue to May PE pricing, and their mood remains cautious, sources said on Thursday.

“Nobody is buying anything for stock,” said one buyer. “It’s more likely to go down [in May] than up.”

April PE pricing is not yet fully settled, and at least one producer is still targeting an increase when it settles retroactive business at the end of the month.

The momentum in an upward price move at the beginning of April faltered as at least one major producer abandoned it and rolled prices over from March in the first days of the month.

On Wednesday 23 April, one producer said it achieved real increases over March, that is, not just a margin increase by absorbing the €15/tonne drop of the April ethylene contract price. This was not confirmed by large buyers, some of whom admitted they had not yet settled the month, however.

“Nothing is short,” said the buyer.

Earlier in April low density polyethylene (LDPE) had begun the month looking as though it could be short, but this perception eased as the month progressed, in spite of some producers closing order books.

A similar situation emerged in the commodity C4 (butene based) linear low density polyethylene (LLDPE) market, and availability eased as April progressed.

Some of the easing of tightness in the market is thought to be down to expectations for May pricing, and it is the upstream ethylene market that has led to expectations of at least no increase in May.

Spot ethylene prices have been under severe downward pressure, and spot ethylene cargoes have shifted at as low as €850/tonne FD (free delivered) NWE (northwest Europe), while the April contract stands at €1,165/tonne FD NWE.

Such a disparity between spot and contract prices has led to speculation over the May monomer contract, but consensus is now that there will only be a mild price drop, as naphtha, the principal driver of ethylene prices, remains firm.

PE sources did wonder how long such upstream disparity could remain.

Naphtha closed the day on Wednesday at $929-931/tonne CIF (cost insurance & freight) NWE.

Crackers are cut back in Europe to avoid oversupply downstream, and fewer imports have led to a tighter PE situation, particularly in the high density polyethylene (HDPE) sector that was considered to be awash with material by some sources. It is here that the lack of imports is thought to be having the biggest impact.

Spot prices have not changed much in April, however.

LDPE net prices are still around €1,260-1,280/tonne FD NWE, and LLDPE C4 trades at €1,250/tonne FD NWE, give or take a few euros. HDPE prices have lifted a little, but some remain low, around the €1,200/tonne mark, up to €1,240-1,250/tonne at smaller accounts.

A new ethylene contract for May is expected next week, and some producers hint that they will attempt to retain any price drop in PE pricing. Buyers do not concur.

“They have had their €15/tonne in April,” said another buyer. “They won’t be keeping any ethylene price drop in May.”