European PE, PP below Euros1,000/tonne

Business, China, Company Strategy, Economics, Olefins, Polyolefins, US

By John Richardson

JOURNALISTS are often accused of exaggeration for the sake a good story, but it is genuinely no exaggeration to say that markets are in free-fall.

Last week we reported on how European polyolefin pricing was on a downward spiral. For example, my ICIS pricing colleague Stephanie Wilson wrote in this article: “We started the week with (low-density polyethylene) prices of €1,250/tonne free delivered Northwest Europe,” one trader said. “By Monday afternoon, we were forced to re-adjust this to €1,180/tonne, and then to €1,150/tonne by Wednesday because of competitive selling in central and eastern Europe.”

Linear low-density PE (LLDPE) pricing for the week ending 24 June had also taken a severe tumble – by Euros55-70/tonne to Euros1,130-1,150/tonne free delivered Northwest Europe from the previous week.

Now we hear that some grade of PE and polypropylene (PP) are being imported into Europe at below Euros1,000/tonne – and that spot pricing is back at levels not seen since 2010.

We are not sure what grades are being offered at such low levels, but whatever grades they are, this would be nothing short of stunning, at the risk of again being accused of journalistic hyperbole. Last week, all the grades of PE and PP assessed by ICIS pricing were well-above Euros1,000/tonne.

Putting two and two together to make four (or five you might think if you disagree), we think that the fall in European pricing looks if it is in part being driven by big problems in the Middle East.

Saudi LLDPE prices have this week fallen by $100-120/tonne to $1,280-1,290/tonne delivered Saudi Arabia, according to this story from ICIS news.

Gulf Co-operation Council (GCC) offers for July LLDPE cargoes are about $130-150/tonne lower than those for June.

GCC LLDPE prices are now 13% from the year-to-date’s high – an April level of $1,520-1,560/tonne delivered Dubai.

It is the case with PP.  Prices in the GCC are down 8% from June to July and 12% from their peak so far this year, which occurred in mid-May.

Operating rates at GCC LLDPE plants were high with some units running flat out, a Saudi producer told ICIS news.

PP producers in the region had no plans to lower production, but were instead aiming to search for more outlets for their volumes, given that China was so weak, we were also told.

The GCC is therefore diverting cargoes to Europe because China is so weak.

We also maintain our strong suspicion that Saudi production could have risen on greater availability of associated-gas feedstock, following the Kingdom’s decision to raise crude output.

Kuwait has also reportedly increased its crude production in response to the failure by OPEC to agree on overall increase in quotas. The country might therefore have been able to raise polyolefin production.

In a free-falling market it might not at first glance make sense for the GCC to ramp-up output. But the region’s producers always make money no matter what the market conditions and so now they have extra feedstock, raising production to gain market share makes sense.

The US, too, is under downward pressure as a great equalisation of pricing occurs across all three regions.

Asia fell first, from the end of the Chinese New Year onwards, and now the West is following.

Careful production management has helped maintain excellent olefins profitability in Europe since early 2009.

But even this skilful calibration of output has failed to prevent further falls in monomer contract prices. July ethylene and propylene contracts were settled lower this week over June. The reductions in June were the first price declines for seven months.

Persistent reports from all regions of high inventory levels among polyolefin producers and converters (another reason why prices are falling everywhere), suggest to us that:

1.)The industry built stocks thinking crude would continue to go higher. Notwithstanding yesterday’s rebound on the Greek parliamentary approval of austerity measures, the outlook for oil looks still looks highly uncertain – and very probably bearish

2.)Nobody anticipated the extent of the drop in demand for polyolefins in China. As we have said several times now, some industry players and observers remain in denial. Naphtha cracker operating rates may therefore be higher than should really be the case based on a realistic assessment of China. Naphtha cracker profitability remains very good, thanks to the production management we talked about in Europe and strong co-product credits. “And so why rush to cut when China is about to come roaring back?” might be the attitude

The turning point has been reached. We think that more and more industry players and observers will be coming round to our view that this is more than just a minor hiccup in China’s growth trajectory.

PREVIOUS POST

Clinging On To Vain Hopes

29/06/2011

By John Richardson JOURNALISTS are often accused of exaggeration for the sake a ...

Learn more
NEXT POST

China Auto Market Provides Clear Evidence

01/07/2011

By John Richardson JOURNALISTS are often accused of exaggeration for the sake a ...

Learn more
More posts
China benzene spreads at ten-year low on misplaced trade deal hopes
19/05/2019

By John Richardson THE ABOVE chart shows that in April the average spread between CFR Japan naphtha ...

Read
Longer trade war: Impact in numbers on China polymers demand
15/05/2019

By John Richardson WE MUST now start to quantify the impact on the petrochemicals industry of no end...

Read
Plastics pollution crisis: Impact on polyethylene margins in 2022-2027
13/05/2019

By John Richardson ALMOST all countries late last week signed a UN deal to monitor the flow of hard-...

Read
China PE demand boom will not stop further margin declines
10/05/2019

By John Richardson CHINA’S polyethylene (PE) market is being temporarily weighed down by overstock...

Read
China holds all the petchems demand aces as it digs in for longer trade war
08/05/2019

By John Richardson THE STRENGTH of China’s position in the intensifying trade war is further under...

Read
President Trump’s Tweets increase risk of no trade deal until 2021
06/05/2019

By John Richardson THE PROSPECTS of a trade deal seem to have have faded into the distance as a resu...

Read
Pressure on US builds as PE exports to China tumble and EU considers tariffs
03/05/2019

By John Richardson DONALD TRUMP insisted in early March that he was willing to walk away from a bad ...

Read
China 2019 PE demand grows in double digits as PP struggles
01/05/2019

By John Richardson CHINA’S polyethylene (PE) and polypropylene (PP) markets continue to tell us so...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more