Europe PE buyers expect June tightness despite arb opportunities

LONDON (ICIS)–Polyethylene (PE) buyers are expecting current tightness in the European market to continue into June, in spite of higher prices opening arbitrage windows, sources said on Friday.

Tightness in the upstream ethylene market is adding pressure to PE supply, even though some force majeures have now been lifted.

“In May we have absolutely struggled by,” said a large converter. “I’m begging, stealing and borrowing between plants, moving trucks from here to there to secure production.”

There were some reports that PE availability was easing as force majeures were being lifted, but large buyers were still having to work hard to get product to the right lines at the right time.

Some PE grades were causing more problems than others, said sources, and almost all grades have been affected by either technical issues at the polymer or monomer level.

“There is not one product where I am not on allocation,” said the buyer.

Borealis and Versalis have both lifted force majeures from Schwechat, Austria, and Dunkirk, France, respectively, but some new cracker issues have affected ethylene supply, and spot ethylene is trading well above contract, for May and also June.

“We are fighting internally over ethylene,” said one PE producer.

A new force majeure on ethylene was called by Naphtachimie this week, as fire led to the outage of its cracker in Lavera, France, on Sunday 17 May.

The cracker is a 50:50 joint venture between INEOS and Total, and INEOS called force majeure on high density PE (HDPE) and polypropylene (PP) this week. Total already had force majeure in place on the entirety of its PP availability in Europe.

The outages seen in recent weeks, on both ethylene and PE, have led to big price hikes in the PE market, and the spread between ethylene and PE has almost doubled in the past three months.

Such high price levels are beginning to attract imports. Several converters have imported their own PE to cover shortfalls in the market. This has usually been done at a considerable cost to the converters, but it has meant they have been able to receive product, whereas some PE grades in Europe have simply not been available, and lines have been closed.

Spot offers are now being made by some traders, but these offers are high, and some seem to be on a back-to-back basis, as potential buyers fear a price drop before material arrives in Europe.

“I am being insulted by my customers,” said one such seller. “For me not to lose money I have to offer at €1,675/tonne [DDP delivered duty paid].”

“A trader offered me some LDPE [low density PE] at €1,700/tonne,” said another buyer who declined the offer.

These prices were way above contracted levels available from European producers.

Sources were hopeful that imports would begin to arrive to relieve tight supply, but the prospect of delivery problems in Ramadan, which is due to start on 18 June, could hit supply from the Middle East, agreed several sources.

There was scepticism over why so many PE plants and crackers have been failing in recent weeks.

One producer said: “These plants have been maintained over the years to run well at 80%”.

“When they are pushed hard there are problems,” it added.

Again sources wondered when the upward price push would come to an end. Several buyers made it clear that a sharp price crash would be hard to take, as it would be difficult to recover recent hikes.

Sources talked of the possibility of tightness continuing into the summer months, with some even saying it would remain firm into the fourth quarter. Others expected some relief in July.

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

Focus article by Linda Naylor