INSIGHT: Europe final PE planned closure takes place in short market

By Linda Naylor

LONDON (ICIS)–The last in a series of planned polyethylene (PE) closures has taken place in Europe, at a time when some converters are closing lines for lack of availability, and the outlook for May does not look any brighter.

The downsizing of Repsol’s cracker in Puertollano, Spain, has limited its capacity of ethylene to 100,000 tonnes/year, and has led to the closure of its old 90,000 tonne/year high density PE (HDPE) plant.

This closure had been planned for some time, and brings up the rear of the list of PE closures that have already taken place in Europe, mainly because of a lack of profitability that was so characteristic of the PE market, particularly the HDPE sector, after the economic crash of 2008.

* Linear low density polyethylene
** Low density polyethylene

All PE closures add up to close to a million tonnes of capacity, and with HDPE now growing at an estimated 2.5% per year, according to one supplier, they have left Europe undersupplied.

The increased use of imports in the HDPE and linea low density PE (LLDPE) markets led to poor margins for European producers, and permanent closures that European installed capacity cannot cover.

“For European [HDPE] production to cover demand, operating rates would have to be at a level never achieved in Europe,” said one PE producer.

A series of unplanned outages leading to several cases of force majeure have tightened the market further, leading to complaints from converters who have been left stranded with no means of alternate supply.

**linear low density polyethylene

Brussels-based European Plastics Converters Association (EuPC) has said the recent series of force majeure declarations by some of the leading polymer suppliers to the European market could have very damaging effects.

“We are receiving reports from our major national associations that compounders and processors are experiencing difficulty in obtaining adequate supplies of polymer to discharge contractual obligations towards their customers,” said Alexandre Dangis, EuPC’s managing director, in a press release.

“This is particularly damaging at a time when many EU states are trying to claw their way back to recovery and in particular when the EU plastics industry is in such a great position to be in the vanguard of growth with its potential to deliver customers and broader society carbon savings and resource efficiencies.

“I am afraid,” he added, “that the force majeure could well lead to processing companies departing the EU to re-establish themselves in Asia where on the face of it a more favourable polymer supply situation persists”.

For the short term, however, converters are doing all they can to cover immediate needs, and this is proving costly.

The tight availability situation has led to soaring price levels in Europe, but even with hikes of close to €200/tonne, net levels on a contractual basis are not high enough to attract imports back to Europe. As prices rise in Europe, they are also higher in Asia, and Middle Eastern suppliers still do not want to change direction towards Europe, as netbacks are better in other regions.

Middle Eastern sellers into Europe now also face the double whammy of the weak euro and the increased import duty, which rose from 3% to 6.5% in January 2014.

As Europe imports around at least 90% of its C4 (butene-based) LLDPE, and a big drop in imports has left that market dry, converters have been looking for substitutes, in the form of C6 (hexene-based) LLDPE and other LLDPE grades. These grades are also now tight.

HDPE blowmoulding is the other PE sector where material is short. Here some large buyers have said they accept that prices will have to increase in Europe to attract imports so that converters do not have to be faced with the prospect of closing lines, but for April, there have been no imports to give relief to buyers.

Sources expect May to be as bad.

While several sources expected LyondellBasell’s plant in Munchsmunster, Germany, to be back on stream shortly, other production sites were still suffering.

Borealis’s Schwechat, Austria, site is not expected to be fully back on stream for some while, and the company does not expect to be back to a workable stock level for several weeks.

The tight-to-short situation leads many to think that May will bring more of the same for European converters.

Ethylene is also tight, and while most sources said it was too early to tell where the monomer contract will land for May, tightness of supply and an upturn in feedstock costs point towards another increase.

Some converters have blamed producers of poor management over current shortages, but their immediate concern is to get hold of enough product to be able to keep their lines running.

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