Europe PE supply tightens on reduced output, good demand
Linda Naylor
13-Jun-2014
Focus article by Linda Naylor
LONDON
(ICIS)–Polyethylene (PE) supply in Europe has tightened in
June as production rates continue to be cut back and demand
is better than many producers had expected, sources said on
Friday.
Price hikes continue to be moderate, however, with sellers
targeting increases up to €30/tonne, and buyers generally
aiming to close at €10/tonne over May, in line with the May
ethylene contract increase.
The mood was beginning to change on Friday, as tensions in
Iraq sent crude prices higher. Mid-morning Brent crude was
above $113/bbl, a level not seen for some time. It closed at
$109.05 on Friday 6 June.
Naphtha was also firm, closing at $951-953/tonne CIF (cost insurance freight) NWE (northwest Europe) on Thursday 12 June.
PE producers in Europe have been complaining of poor margins
for many months, and such upstream hikes, if sustained, would
likely be taken into consideration when monomer contract
discussions take place at the end of the month.
Low density polyethylene (LDPE) spot prices have increased
again this week, and are now trading consistently above
€1,300/tonne FD NWE, with some sales now reaching
€1,300/tonne. In early May they were at €1,260/tonne.
“People are interested in buying again,” said a trader.
“I think producers have misjudged demand this month,” said a distributor, “They are very very careful in controlling working capital, and now there isn’t enough material.”
Not all buyers saw the situation from this point of view, however.
“I am still aiming to get €10 [up],” said one, who was still
aiming to get the same increase in PE of the June ethylene monomer contract.
There are differences between PE grades, and some linear low
density polyethylene (LLDPE) prices have
been slow to move because of competition between grades
limiting price movements.
High density polyethylene (HDPE) pipe prices have increased by up to €50/tonne
at very low-priced accounts, whereas HDPE blowmoulding
sellers are finding it hard to lift prices beyond €10/tonne
this month.
HDPE demand has been strong in Europe this
year, recording a volume increase of more than 6%
year-to-date in May.
Imports have been reduced in volumes during 2014, mainly thought to be down to the increase in duty from major Middle Eastern suppliers from GCC countries in January, when duties rose from 3% to 6.5%.
The upcoming fasting month of Ramadan is adding some
nervousness to the PE market as there have been times in the
past when deliveries into Europe have been delayed
significantly during Ramadan.
Several large buyers said they have experienced no supply
issues at all and saw no reason to buy more product than they
needed for immediate use.
“There is some nervousness around here,” said one producer.
“Everyone still has June 2012 in their memories.”
A PE selling spree by European producers at the end of June
2012, at levels often below €1,000/tonne FD NWE, left
commodity PE grades short as demand surged when low naphtha
prices soared back up only days after a slump.
The sudden change in the market stemmed from the sharp
reversal in crude oil and naphtha prices that began on Friday
29 June, just hours after the settlement of July ethylene and
propylene contracts in Europe, both down by €170/tonne.
LDPE spot prices reached a low of €980/tonne FD
NWE the week of 29 June 2012, from €1,340/tonne a month
earlier. They were back up €1,400/tonne at the end of
August.
Naphtha’s weekly range during the week ending 22 June 2012
was $683-691/tonne CIF NWE. On Friday 6 July 2012 morning
naphtha was trading at $819-827/tonne CIF NWE.
Sources do not see the possibility of such extreme movements in the current market, as inventories are not as high as they were then, and few expect the changes that were seen then, but they are keeping a close eye on crude oil and naphtha price movements.
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