Europe PE availability tight as selling halts, naphtha rises

Focus article by Linda Naylor

LONDON (ICIS)–Polyethylene (PE) availability is tight in Europe as most sellers have sold their allocations for February in expectation of higher prices next month, sources said on Wednesday.

The focus of the attention has become the March ethylene contract, which is not yet under serious discussion, but price drivers are up and sources expect upward pressure next month after falls since August 2014 as crude oil and naphtha prices crashed.

The upturn in these main drivers is leading to expectations of a higher March ethylene contract price, and that is expected to bring PE prices up in its wake.

“I think we will see a huge increase next month,” said a distributor.

The February ethylene contract settled at €810/tonne FD (free delivered) NWE (northwest Europe) on 28 January, down by €70/tonne from its January level.

On the evening of 27 January, European naphtha closed at $402-403/tonne CIF (cost insurance freight) NWE, and at $411-413/tonne on the following day.

On Tuesday 17 February naphtha closed in Europe at $513-516/tonne CIF NWE. On Wednesday morning it was assessed even higher, at $518-520/tonne.

As ethylene production in Europe is naphtha based, naphtha is an important component of ethylene and all players are aware that such an upward move will eventually affect PE prices.

Several pundits are of the view that the current upturn in crude, and hence naphtha, prices, will be short-lived, and that prices will fall back mid-term.

For the moment, however, crude and naphtha prices are higher, not to the levels seen in June 2014 but certainly higher than last month, and this will almost certainly lead to a higher March ethylene contract price.

In recent months PE prices have followed movements in the upstream ethylene market closely.

“They’ve [producers] sold what they have to sell,” said a PE buyer.

“Product is really tight,” said the distributor. “People are now regretting they didn’t buy in Jan and they’re coming back for more. But it’s all gone.”

Several PE producers closed their order books in the first week of February, on stronger-than-expected demand.

“We have sold all we plan to sell,” said a producer.

Spot PE prices are already on the way up as some buyers scramble to get hold of product.

Low density polyethylene (LDPE) spot prices had dropped below €1,000/tonne FD (free delivered) NWE at the end of January.

On Wednesday it was hard to gauge LDPE prices as so little was available for sale, but €1,100/tonne FD NWE did not shock players, and most spot sellers were expecting higher than this when March comes under discussion.

One seller had sold just below €1,200/tonne and intended to increase again in February.

Resellers were keen to see prices increase as stock had been losing value in recent weeks.

Producers have managed to increase the spread between ethylene and PE in February as price ideas have risen throughout the month and they have been able to keep hold of some of the €70/tonne drop in the February ethylene contract at some freely-negotiated accounts.

The March ethylene contract is not expected before next week.

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