Europe PE players positioning for August after ethylene drop

LONDON (ICIS)–Polyethylene (PE) buyers and sellers in Europe are making their opening gambits for August following Wednesday’s settlement of the ethylene contract at a €70/tonne decrease from its July level, sources said on Thursday.

There were indications from buyers that some producers were looking to limit the August PE decrease to €50/tonne, while others had already informed their customers that they would be transferring the full €70/tonne to them, said buyers.

This was not enough for some buyers, however, who aimed to get a bigger decrease, albeit limited.

“Enough is enough,” said one. “It has to stop somewhere. They have been increasing their margins for the past few months.”

The spread between ethylene and PE has been increasing for several months, leading to a gap of around €600/tonne by July, taking gross ICIS PE levels against the monthly ethylene contract, leading to an increase of spread of €300/tonne since October 2014.

Some PE grades are still tight, notably most linear low density polyethylenes (LLDPE) and high density polyethylene (HDPE) pipe grade, while the extreme tightness of others has eased as force majeures have been lifted and imports cover some shortfalls.

Low density polyethylene (LDPE)) spot prices are falling fast, as tightness has disappeared and buying stalls on expectations of yet lower prices to come.

PE buyers have been expecting lower prices for some time, and in spite of the €70/tonne drop in the August ethylene contract, ethylene is still tight. A spot deal was done this week at above the new contract price. Sources expect supply to ease by the second half of August, but expectations of more PE and monomer availability have been put off several times.

“The worst case scenario is we will be forced to accept the minus 70 [€/tonne],” said a producer, “or we will make 5 kilo tonnes of stock, but this will be like gold.”

It was too early to begin speculating over September price movements and supply, but it was foremost in many players’ minds as they took decisions for what stock to hold in August.

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

Focus article by Linda Naylor