LONDON (ICIS)--Plastics players globally are preparing to attend the world’s biggest plastics show - K 2016 - in Dusseldorf this month, as October pricing is still under discussion, sources said on Wednesday.
The events of 2015 are still fresh in the minds of most, and producers’ margins remain stronger since then.
The crash in crude prices, the fall of the euro against the US dollar and a series of force majeures on monomer and polymer left the European PE and PP markets tight and prices soaring last year. Lines closed for lack of product and there were recriminations as buyers argued producers should never have left them in the position where they had no stock.
Producers had been exporting strongly - European demand was soft so they took advantage of exchange rates to export - and when European buyers returned, there was not enough material to go round.
A series of force majeures on monomer and polymer plants ensued, exacerbating the tight situation, leading to soaring PE and PP prices.
Plants that had been only expected to run at less than optimum rates were pushed hard and many failed, both on the monomer and polymer side, leading to a series of force majeures rarely seen in Europe.
The spread between monomer and polymer soared, and sellers were able to use expanded margins to enforce harsher payment conditions on buyers for 2016 contracts.
Many converters understood the hard way that security of supply was more important than price, and prices certainly rose.
In the meantime, PE and PP sources are watching movements closely in October, and the supply/demand balance has eased somewhat since the events of 2015.
Imports of some PE grades in particular have had an impact as buyers and their customers have been destocking, and producers have found it hard to pass on the increase in the ethylene contract to their buyers- with the exception of the UK, where buyers are under pressure to pay large hikes, as the pound weakens against the euro.
PP producers, on the other hand, have managed to pass on at least some, if not the whole, propylene increase to their customers.
The current spread between ethylene and PE is down from its highs this year in April and May, but it is still significantly higher than at the end of 2014, before the momentous events of 2015 took place. A similar picture has emerged for PP and its monomer propylene.
October pricing is still under discussion in many cases.
Imports are more likely to affect PE than PP, most sources agreed, and new capacity from Egypt and Saudi Arabia, also the US, would have to have some impact. But for the fourth quarter, contractual sellers were quietly confident.
PE and PP pricing has a habit of moving quickly during the K fair- so much so that some producers no longer discuss prices with their customers during that time.
With crude and naphtha higher, and the arbitrage between Asia and Europe showing a clear advantage for exporters to send their product to Asia, and many sources did not expect much change in the final quarter of 2016 because of this.
Quarter four sales were also likely to be heavily skewed towards producers as end-year volume rebates are already coming into play. Many buyers have rebates on the whole of their annual purchases dependent on achieving pre-agreed volumes with their producer.
The K Fair will run from 19 to 26 October in Dusseldorf, Germany.