Europe PE, PP buyers plan to claw back some margin in August

Focus article by Linda Naylor

LONDON (ICIS)–Polyethylene (PE) and polypropylene (PP) buyers in Europe intend to claw back some of the margins that producers have built in the past few months, several said as August pricing discussions began.

Extreme tightness caused by reduced import volumes and an unprecedented number of force majeures on both PE and PP left polyolefin supply short in many cases, and prices soared well above monomer levels.

“I will be extremely disappointed if we don’t close this gap again,” said a buyer of both PE and PP.

August was seen as the first time in many months that PE buyers could claw back some of the margin producers have gained, by targeting decreases greater than the drop in the monomer contract.

Some PP buyers had achieved this feat in July, when PP prices fell by slightly more than the €20/tonne fall in the propylene contract, but for PE upward pressure has been relentless, and some PE prices have risen by as much as €600/tonne in a few short months.

A producer admitted that August would be different.

“It’s already a change that we intend to follow c2 [ethylene],” said one. “Before, we didn’t care about ethylene.”

Buyers have been frustrated for some time as they saw the spread between monomer and polymer widen significantly, powerless to resist. They also complained that not only were they paying more than they deemed reasonable, but product was often not even available.

Several local plastics groups made representation to the EU, calling for more investment in production plants so security of supply could be assured.

By August, most force majeures were no longer causing supply issues, and slower summer demand was kicking in. Some PE grades remained tight, but even here, in high density polyethylene (HDPE) pipe grade, and metallocene linear low density polyethylene (MLLDPE) there was no longer any panic over availability issues.

PP supply tightness has also eased, but at least one producer was still not long on product availability.

“We managed to build up a bit of inventory in July but we’re still extremely short, in fact way below our stock targets,” said one.

A couple of PE producers have said they would be targeting to limit decreases to only €50/tonne in August, in spite of the €70/tonne drop in the ethylene contract, but there was already evidence that others were already relinquishing the full monomer, and some were ready to go beyond that.

“We will go with the full monomer,” said another producer, “but we’re giving our account managers some room to move this month.”

While most PE and PP buyers expected a drop of more than the contract decreases, there was no serious expectation of a price crash.

“Will I get €10 [/tonne] more than the ethylene [decrease]? Yes,” said a PE buyer of one of the still-tight grades. “Will I get €20? Probably. Will I get €30? Mission impossible.”

Buyers of other PE grades were looking for a decrease of as much as €120/tonne in August, but no sellers were yet willing to give so much.

PP buyers were fairly confident of getting as much as €100/tonne down from July.

Most business is yet to be discussed for August. PP is likely to settle quickly, as buyers go on holiday, while PE discussions could be more protracted as retroactive buyers expect to be able to do better at the end of the month than at the beginning of August.

PE and PP are used widely in packaging and the manufacture of household goods. PE is also used in the agricultural industry and PP in the automotive sector.