Europe PE-ethylene spread lowest of 2017

Source: ICIS News


polyethylene bags

LONDON (ICIS)--Polyethylene (PE) buyers in Europe have achieved their target of reducing the ethylene/PE spread in November, but the outlook is uncertain for December as naphtha prices remain strong, sources said on Wednesday.

The November ethylene contract settled at a rollover, and initial targets from producers had been to settle PE in line with this upstream rollover, but it soon became clear that this would not hold.

Buyers have achieved a price drop of around €30/tonne for the month, eating into the monomer/polymer spread for the first time since June, leaving the spread at its lowest point in 2017.

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

The outlook for December has become uncertain as upstream naphtha prices have soared, leading to speculation over a higher ethylene contract for December.

While many buyers rule out the possibility of a PE price increase next month, they are also unsure of a price drop, as they had expected before crude and naphtha rallied.

Spot prices have largely stabilised after a significant price drop in November, and some sources are now waiting before selling lower, to see how the land lies upstream at the end of the month.

A new ethylene contract for December is not expected before the end of the month.

The current gap between the two reference points of around €415/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 lower spread was widely considered unsustainable, and during that time some production units in Europe closed permanently. Some producers consider the current one equally unsustainable and are preparing their markets for hikes in December.

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

Pictured: PE bags Source: AHY Plastic Industry