Europe PE buyers cautious in high-priced market

Focus article by Linda Naylor

LONDON (ICIS)–Polyethylene (PE) buyers in Europe are moving very cautiously in July as they fear prices may fall in August, thereby devaluing any stock they might hold, sources said on Thursday.

“They [buyers] are resisting,” said a trader. “I’m selling, but there is resistance.”

PE spot activity has slowed down for July, following the initial flurry that often follows the monomer settlement. Many sources were now focussing on the August ethylene contract, to get an idea of the price direction for August PE.

Ideas for the August ethylene contract vary, with some sources convinced of a €50/tonne drop from its current level of €1,220/tonne FD (free delivered) NWE (northwest Europe), on lower crude oil and naphtha prices, and others expecting no change, as ethylene availability tightens in some areas.

“Even if the ethylene contract drops, PE will remain stable,” said one PE producer.

Low density polyethylene (LDPE) in particular has been tight in Europe, affected by SABIC’s force majeure, declared on 8 July, following problems at the company’s sites in Wilton, UK, and Geleen, the Netherlands.

The 400,000 tonne/year LDPE plant at Wilton was said to have restarted on Friday 11 July, but by Monday 14 July, buyers said they were still experiencing delivery problems from the site and several suspected that production was still not fully on stream.

A couple of LDPE producers already closed order books in the first half of July.

Linear low density polyethylene (LLDPE) C4 (butene based) is also on the tight side, as imports are fewer and some LDPE buyers use more of this grade for blending. Here too, however, spot activity is not particularly brisk. Some converters may have bought a little spare material in a move to offset any potential problems that could arise associated with Ramadan, said some sources.

LLDPE C4 net spot prices are trading higher than in June, but some sellers were finding it hard to sell as high as €1,350/tonne, with most sales seen at €1,320-1,330/tonne FD NWE.

LDPE was still in the mid-to-high €1,300s/tonne, with a couple of producers saying they had managed to lift net prices to €1,400/tonne FD NWE.

There was no tightness in the C6 (hexene based) LLDPE market, according to buyers, but they were under as much pressure to accept higher prices as in the C4 sector.

Hikes of €50-80/tonne are still talked by sellers, and for some grades, especially LDPE, increases could reach more than €50/tonne, but plus €80/tonne was being dismissed out of hand by buyers.

The July ethylene contract rose by €50/tonne.

Some high density polyethylene (HDPE) buyers were expecting to be able to get away with less than plus €50/tonne for July, in spite of the number of ethylene-linked deals that would lead to an automatic €50/tonne increase for July HDPE.

It was too early to tell whether these buyers would manage less than plus €50/tonne. They were basing their arguments on lower crude oil and naphtha prices, and an expected downturn in August demand.

On Thursday morning Brent crude oil ICE futures were trading back up again, at $107.57/bbl, while naphtha closed at $936-936.50/tonne CIF (cost insurance freight) NWE on Wednesday. Both are down from the levels that were trading when the July ethylene contract settled.

With much of the month of July to go, and many retroactive settlements in place in the PE market, price ideas are expected to shift as upstream prices change. On the whole, however, the price direction for settlements of all PE grades is expected to remain largely in line with movements in the July ethylene contract, with the odd anomaly here and there.

“This [July] is a month when we will have to take August into consideration as well,” said one buyer.

PE is used widely in the packaging sector, the manufacture of household goods, and also in the agricultural industry.