Europe PE buyers not happy with ‘Pavlovian’ expectations of sellers

LONDON (ICIS)–European polyethylene (PE) buyers are beginning to express irritation at producers’ expectations of being able to transfer the increase of the ethylene contract on to the PE market, several said on Friday.

“It’s like Pavlov with his dogs,” said one. “We are not buying ethylene, we are buying polyethylene.”

Some buyers have already been informed that their May prices will be a combination of the ethylene price hike– in this case €40/tonne- and a supplementary €20/tonne, giving PE producers yet more margin, on top of the ethylene/PE spread that some converters are describing as record.

In recent months most of the moves in the upstream ethylene contract have been transferred to PE buyers, and sometimes more margin has been built into the PE price.

The above chart shows the current delta between low density polyethylene (LDPE) ICIS FD (free delivered) EU gross prices compared to the prevailing ethylene price in €/tonne.

April buyers are being faced with hikes of €80/tonne, when the April ethylene contract rose by €60/tonne, adding to the ethylene/PE spread.

End-month buyers are still trying to resist such hikes but they are not having much success at present.

“We don’t have enough demand to cover these hikes,” said another buyer. “We have lines off.”

Some stock has been building with converters and distributors, as many feared a repeat of 2015, when the fall in the euro/USD exchange rate led to fewer imports and a series of production issues led to a shortage of supply.

This build-up of supply is leading to lower demand for May, they said.

“We don’t have to buy the full planned volume for May,” said one of the buyers, “but we do need to buy some.”

“My supplier has told me if I don’t want to pay plus €60[/tonne] that I should just cancel my order.”

Suppliers are still generally seeing a good market with strong demand and controlled inventories.

Not all were looking for more margin expansion in May, however.

“I think plus 40 [€/tonne] will be doable but anything more than that will be hard,” said one.

“We are not planning on expanding on margin,” said another.

One unknown factor was the amount of imports that could affect supply.

The most recent import data for February showed a big increase in high density polyethylene (HDPE) imports, but sources were not sure that April and May would provide such a volume again. Current offers for May lifting from other regions were at levels many feared were too high to work once the product arrived in Europe.

One indication of how May pricing will turn out is the spot market, and here prices have not risen in anticipation of higher numbers in May.

Some grades have even slipped slightly, particularly in the sectors like C4 (butane-based) linear low density polyethylene (LLDPE) and HDPE unimodal, both of which are sensitive to the arrival of imports.

Discussions for April pricing are still not settled, and May talks will be slow to start in many regions where retroactive pricing remains firmly entrenched.

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

Focus article by Linda Naylor

(Image source: Sovfoto / Universal Images Group/REX/Shutterstock – Ivan p, pavlov watching an experiment with a dog, summer 1934)