Europe PE still tight, sellers aim high for June

Linda Naylor

03-Jun-2015

Europe tight availabilityLONDON (ICIS)–Polyethylene (PE) supply remains tight in Europe and June sellers are targeting more margin improvement, sources said on Wednesday.

“PE supply is a disaster,” said a distributor. “Price is not the issue.”

Spot PE prices have soared, but buyers are also facing more big hikes in June, even though they might not be as strong as those seen in May.

“We are looking for ethylene [monomer contract increase] plus €40/tonne,” said one producer. As the ethylene contract rose by €60/tonne in June, this would mean a €100/tonne increase for June PE from that supplier.

Targets differed, said sources, as availability of PE with suppliers also differed.

Metallocene linear low density polyethylene (MLLDPE) was very tight, and here higher targets were heard.

In May, buyers had been forced to pay a €200/tonne hike on a take-it-or-leave-it basis, while some were saying they had been offered plus-€150/tonne for June.

Availability of linear low density polyethylene (LLDPE) has been a problem for several months in Europe, beginning with tightness in the C4 (butene based) LLDPE sector, as imports fell on poor netbacks and an increase in import duties from regular sellers.

Converters have been switching grades to be able to cover their own demand, leading to tightness in all LLDPE grades.

Tightness has emanated from lower imports and better-than-expected demand that came when stocks across the board were low, but also stronger exports and several cases of force majeure that have rocked the market.

Several forces majeures remain in place, and June remains a seller’s market, even as sources expect imports to arrive to replace missing quantities. Traders are loath to risk material arriving when prices begin to fall, and some deals are being done on a back-to-back basis, at high price levels.

Many players are trying to gauge when the current trend will turn. Many large buyers are concerned that prices will fall quickly once they begin to slip, leaving them unable to recover the very big increases they have had to accept.

It is not clear when the trend will turn, but June looks set to remain firm.

“I think it will turn in August,” said a buyer, “when people slow down for holidays.”

“We think tightness will continue into September/October,” said another producer.

Other sources said it depended on the level of availability with each producer.

“It’s a question of time, and who will make the first move,” said the distributor.

Low density polyethylene (LDPE) spot prices have increased by close to 70% since the end of January.

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

Focus article by Linda Naylor

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