Europe/UK PE, PP buyers watch post-Brexit forex to gauge July prices

LONDON (ICIS)–Polyethylene (PE) and polypropylene (PP) buyers in the UK are keeping a close eye on exchange rates to get an idea of what might happen to their prices in July, several said on Thursday.

The pound sterling has had a rocky ride this week since the UK referendum, when a small majority voted to exit the EU.

On 1 June, the pound was worth around €1.30, falling to a low of just below €1.20 on 27 June, and was trading at €1.212 on Thursday, according to xe.com on Thursday morning.

UK buyers calculate prices using different methods, with some using the average rate of the month, others using a single point in the month, or a combination of means.

“So far this month the average is around €1.266,” said a buyer.

Others might be setting retroactive prices using Thursday’s exchange rate, leading to an increase in June prices, but most players expected some flexibility from suppliers when it came to June end-month prices.

“I still expect a rollover to small reduction for my UK prices this week,” said another buyer, “but July will be up.”

Some buyers had made some provision for the possibility of a leave vote in the referendum, however.

“We did a lot of hedging,” said another buyer, “but the UK will have to move up [in price].”

June pricing in mainland Europe was slightly down, in spite of the €25/tonne increase in the June ethylene contract, as demand was poor and imports high in volume.

Most UK buyers will not be able to access lower prices, agreed sources, and there would be strong upward pressure in July, in spite of expectations of a price drop in mainland Europe.

Net monthly low density polyethylene (LDPE) spot prices are currently around €1,250-1,300/tonne, and most buyers expect this to slip in July.

Using an average rate of €1.266, this would equate to £987-1027/tonne, but at €1.212, it would be £1,031-1,073/tonne.

Lower prices in Europe would clearly mitigate this to an extent, but for the moment most sellers are talking of a rollover and even increase, in line with the €10/tonne July contract ethylene hike, for July PE.

PP buyers could expect a similar move, said sources, although the market is in better balance, and the July propylene contract increase was greater than ethylene, at €17.50/tonne.

Spot PP offers into the UK already seem to have been aligned to the new exchange rate, and homopolymer offers were in the mid-€900s/tonne.

It was not clear how pricing would be affected moving forward, but some sellers were clearly attempting to eschew sterling contracts altogether, and offer only in euros.

This would clearly be a matter for buyers and sellers to discuss, but there was talk of at least one major producer attempting to install euro pricing throughout the UK, thereby avoiding the vagaries of the exchange rate.

Several sellers had already made it clear that they would not be taking a hit over UK prices.

“We will be looking at a price increase in the UK,” said a producer. “We have long term customers there and we won’t pull out, but we need to revisit pricing in the UK.”

 “We won’t stop delivering,” said another, “but already we have been seeing for some time that we are losing margins because of the exchange rate. It is something we will have to address.”

The UK has some linear low density polyethylene (LLDPE) production at INEOS’s plant at Grangemouth, and homopolymer PP is also produced at this site. LyondellBasell also has homopolymer PP production at Carrington.

The UK has no copolymer PP capacity, according to sources.

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

Image source: Jeff Blackler/REX/Shutterstock