INTERACTIVE: Europe PE buyers target spread erosion for November sellers

Polyethylene (PE) buyers in Europe are targeting some penetration into producers’ ethylene/PE spread in November following a fairly widespread follow-through of the monomer hike onto PE prices in October, sources said on 1 November. The November ethylene contract settled the pervious week at a rollover from October, and some PE buyers saw this as their opportunity to grab back some of the monomer/polymer spread.

The spread has dropped throughout most of 2017, rallying in September, and continuing through October. In spite of the September spread improvement, the current gap between the two reference points of around €450/tonne remains well below the high of €650/tonne of April and May 2016, but well above the spread in September and October 2014, when it was just €305/tonne.

The chart shows the end-September delta between the ICIS low end, low density polyethylene (LDPE) FD (free delivered) EU gross prices, compared to the prevailing ethylene contract price.

MARGINS

Sellers are keen not to give away margin, and insist the low margins of 2014 were entirely unsustainable. In support of that argument, they point to a raft of permanent PE closures in Europe that made on the back of poor margins.

October demand was disappointing for some sellers, however, particularly distributors and traders, but there were also some spot deals circulating from producers.

In contrast to expectations of lower prices in November, crude and naphtha prices have spiked, leaving naphtha in the mid-$500s/tonne CIF (cost insurance freight) NWE (northwest Europe) mid-week. Against such a backdrop, sellers were expected to withhold from dropping contract prices as much as possible, and end-year rebates could lend them some support in this task, said sources.

Spot prices have been eroding in the past couple of weeks, and there was still talk of low-priced spot deals for certain limited grades at the odd large account. In the wider PE spot market, there was speculation over how low prices could go, as new offers from the usual destinations were not low enough to allow much more erosion, said spot sellers.

Expectations of low-priced material from North America were still widespread, but none was arriving in Europe. Sources in Europe expected material to be offered into the region during the first quarter 2018. Monthly PE pricing is expected to continue throughout the month, but some settlements are expected to show the way in the coming days.

GOOD DEMAND IN NOVEMBER

Meanwhile, European polyethylene (PE) producers are seeing strong demand for the beginning of November, following a pretty poor October in many cases, but spot sellers are still frustrated by the lack of volume in the market, sources said on 3 November.

“This is the best low density demand we have seen in the past 23-24 months,” said one producer. Even high density polyethylene (HDPE) monthly volumes had picked up. “Order intake from contract customers is at a higher level than the last three months,” said an HDPE producer.

Linear low density polyethylene (LLDPE) volumes were said to be good, but not as strong as for LDPE. Sellers were looking for a rollover in November pricing, but buyers expected to be able to get a reduction of €20-30/tonne, in spite of the rollover in the November ethylene contract and strong naphtha prices.

One reason for good contractual demand could be put down to buyers continuing to buy from their regular suppliers: business is running normally, and there is the matter of the end-year bonus rebate that they want to secure. Spot sellers were having a quiet time of it in November. Many spot buyers were covered, and simply did not need to buy, they said. They were also waiting for lower prices, but for the moment, spot offers for imported material were still relatively high for fresh imports. PE discussions are expected to continue throughout the month. PE is used in packaging, the manufacture of household goods, and also in the agricultural sector.

Tableau interactive by Will Beacham