Europe PE buyers concerned over availability

Focus article by Linda Naylor

LONDON (ICIS)–European buyers of some polyethylene (PE) grades are becoming increasingly concerned over availability in December and beyond, sources said on Thursday.

High density PE (HDPE) film buyers in particular are worried.

“Imports are not there any more,” said one buyer. “December prices won’t go down by the 50 [€/tonne]. We will be lucky to get 10 [€/tonne].”

“It’s hard to get material for 2015,” added the buyer.

“It’s extremely tight,” said another buyer. “We are still see volumes flowing out of Europe and not much going in. We appreciate Asia [prices are] going down as it will redress the balance, but it will take at least three months until the balance is reached.”

The tight availability problem is valid for unimodal and bimodal HDPE, but more urgent on bimodal, and several sources said they expect the strong dollar and lower crude oil prices to continue well into 2015, meaning little change to current trading conditions.

As margins have been poor on many HDPE grades in Europe in recent years, particularly since the economic crisis of 2008-2009, producers in Europe have been cutting back production, and several HDPE plants have been closed, with more earmarked for permanent closure.

The latest plant to close was Borealis’s 175,000 tonne/year unit in Burghausen, Germany, at the end of the third quarter.

One European HDPE producer said that 2014 was the first time it had seen any profit on HDPE since 2008.

The recent crash in crude oil and naphtha prices has allowed European producers the room to move strongly into exporting, and low prices and increased duty levels from GCC countries have left imports low in Europe.

Trader activity is slow and traders are finding it hard to get hold of material at a price attractive enough to work.

“We are in the driving seat at the moment,” said a producer.

PE prices are still among the lowest globally, but recent falls in Asia are bringing those into competition for this dubious honour. Low crude oil and naphtha prices are exerting downward pressure on prices globally.

“My gut feeling is that in the next couple of months things will shake out a bit,” said a third buyer. “Asians are also looking a couple of months ahead. They could start rejecting Middle East shipments.”

Contracted prices in the PE market in Europe are under discussion for December, and demand remains steady as buyers ensure they reach volume targets that will trigger discounts on volumes bought throughout the year.

The December ethylene contract fell by €50/tonne, but a widespread €50/tonne reduction in the PE sector does not look likely at present.

PE activity is expected to tail off towards the end of the year and sources are already speculating on how the ten-day break will affect the market.

Producers’ stocks have been low and product is tight, but lower naphtha prices and better cracker margins could lead to some build-up of product in the holiday period.

Many players are already expecting a further price decrease in the January ethylene contract, as the December contract did not fully reflect upstream fundamentals, according to some sources, and this could lead to further price reductions in the PE sector.

Everything is uncertain, and many players admit they find even the short-term outlook hard to call.

“I find it hard to see what will happen after 15 days,” said one.

The fly in the ointment for European producers could be the arrival of Borouge 3, the massive new capacity due on stream in Abu Dhabi imminently. Its capacity is such that it could be a game changer for pricing globally, said some sources.

“Europe will not be an immediate option for Borouge capacity,” said another buyer, however, as import duties and low prices could mean better netbacks elsewhere.

Borouge 3 will raise the company’s olefins and polyolefins capacity to around 4.5m tonnes/year from 2m tonnes/year currently.

PE is used widely in the packaging and household goods sectors, and also in the agricultural industry.