Europe LLDPE tightens as Jan-Nov 2014 imports fall 32%

Focus article by Linda Naylor

LONDON (ICIS)–Imports of linear low density polyethylene (LLDPE) into Europe from GCC (Gulf Cooperation Council) countries – the continent’s major supplier – remain significantly low according to recent figures supplied by Eurostat, and has led to tightness in some areas, sources said on Wednesday.

Latest figures show a drop of 32% in EU imports from the rest of the world in the first 11 months of 2014 compared with same period in 2013.

This reduction in imports is down to better netbacks in other regions following an increase in import duty of 3% to 6.5% from GCC countries on 1 January 2014. It has had a tightening impact on C4 (butane-based) LLDPE, particularly since the end of the third quarter 2014.

Most C4 LLDPE used in Europe is imported from GCC countries, with some sources saying as much as 90% of Europe’s usage is made up of imports and some large buyers in particular have had to make extra provision for getting all they need.

LLDPE production in Europe is limited mainly to C6 (hexane-based) and C8 (octane-based) product, although there remains a limited amount of C4 LLDPE output. Metallocene-based LLDPE (MLLDPE) is also gaining ground in Europe, as down gauging – the practice of making thinner films with enhanced strength – gains in importance.

SABIC’s recent technical issues, that played havoc with LLDPE deliveries in early January, have not helped.

LLDPE prices have decreased in recent weeks, however, in spite of the continued fine market balance. The tightness at the end of 2014 is no longer as severe as it was, and most small- and medium-sized buyers are able to get all they need.

Some larger buyers are still concerned over availability, and while there are no more recent import statistics than November, a couple have said they were still experiencing availability issues.

Spot LLDPE C4 prices have dropped to the mid-€1,000s/tonne FD (free delivered) NWE (northwest Europe) on a net basis in some cases, while some regions are still paying over €1,100/tonne for their material. In December, net pricing levels were often still in the mid-€1,200s/tonne FD NWE.

This hefty price drop has been due mainly to the spectacular price drop in upstream crude and naphtha prices. Brent crude has dropped by more than half its value and was trading at $48.59/bbl on Wednesday morning. It traded at a minimum of close to $100/bbl, and sometimes well above, until September 2014, when it began to fall, dipping below $46/bbl on 12-14 January.

Such price movements have had an effect on prices downstream, and a further downturn is expected in the February ethylene contract, which is expected to affect further polyethylene (PE) prices next month.

Some sources expect LLDPE C4 pricing to remain firmer than other grades, on the reduced number of imported volumes into Europe.

Netbacks in other regions are also being affected by lower crude and naphtha numbers, and potential importers in Europe are keeping a close watch on prices elsewhere to see when arbitrage opportunities might arise,

Borouge 3 will be coming on stream in Abu Dhabi imminently, with around a million tonnes each of polypropylene (PP) and PE, and this will have to be placed. Such volumes have been introduced mainly to serve the Asian market, but some will inevitably find its way to Europe, and much depends on pricing in both regions.

LLDPE is used widely in packaging and in the agricultural industry.

Eurostat import/export data is subject to revision as more detailed information becomes available. EU figures comprise the aggregate of member states data published by Eurostat.