Europe spot PE prices reach record highs in short market

Focus article by Linda Naylor

LONDON (ICIS)–Polyethylene (PE) spot prices in Europe are reaching record high levels at some accounts, as desperate buyers pay what they have to in order to secure material, sources said on Friday.

Spot prices are now way above contract prices, with some buyers paying several hundred euros more for the trucks of material they can find with traders than their contracted prices with producers.

“I have three sorts of prices,” said one buyer. “Contract prices, prices with C2 [ethylene] links, and spot.”

There is even a division within spot pricing, as sellers take differing approaches to the market.

There are spot sellers that take into account past business associations with converters, and offer what could be described as reasonable prices to these accounts, and spot business at accounts where there is no history between buyer and seller, and where offers are sometimes described as ridiculously high.

Such prices are only accepted under exceptional circumstances, at desperate accounts.

High prices, and even higher offers, have arisen because of the tightness in the PE market. One offer of above €1,700/tonne FD NWE was heard in one instance this week. Most sources considered this to be too high even for desperate buyers.

Several PE grades were already tight earlier in the year, as the weak euro meant fewer imports and strong exports, but it was the rally in crude oil and naphtha prices that sent empty converters back to the market, leading to a buying rush that tightened market conditions.

Several force majeures added to the tightness, leading to shortages in April, and some dramatically high spot offers.

These high offers, leading to business being concluded in extreme cases, have reached record highs this week.

Levels above €1,480/tonne FD (free delivered) NWE (northwest Europe), last heard in August 2008, are now being done. These price levels are still considered to be extreme, and €1,400-1,450/tonne is also being done, but some spot sellers are getting the most of the short situation and pushing prices up at desperate accounts.

Some buyers prefer to close lines, or are forced to as product is simply not available.

“I have two or three lines where I can’t get the product,” said one buyer. “We will have to stop them.”

It was large buyers that were under the most pressure, said sources. On the one hand they had preferential treatment from some suppliers because of their size, but they were also the ones faced with very high spot offers from opportunistic sellers.

There are not many of these, however, as supply is very tight and it is hard for trader to replace product with offers from Asia generally too high to work.

“It’s like the Planet of the Apes out there,” said one trader.

“The market’s going mad,” said another.

There were some voices of caution that showed concern over what they considered to be the overheating of the market.

“The connection between C2 [ethylene] and PE is getting less,” said another trader, “…but I’m worried about this situation. [Finished] film producers are struggling to pass this cost increase to their product but they are not successful because film buyers do not understand [the] increase of PE when C2 does not increase so much.”

Sources do not expect the situation to change in May, however, and all signs are for another big hike next month. The gap between spot and contracted prices is also of concern to many players.

LLDPE and high density polyethylene (HDPE) blowmoulding grades are those where the most extreme shortages are reported, but all PE grades are tight.

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