Europe PE spot activity slower on uncertain trend

LONDON (ICIS)–Polyethylene (PE) spot activity in Europe has slowed down as participants wait for the March ethylene contract to settle, and also because the trend for next month seems unclear, sources said on Thursday.

Monthly contracted volumes continue to move along nicely, and both buyers and sellers said that demand in this sector was good.

The spot market, however, is beset by uncertainty.

“Everybody is waiting,” said a trader. “Nobody is sure of the direction.”

Upstream, ethylene is still tight, and one PE producer said it was impossible to get hold of monomer at anything lower than contract flat terms, that is at the same price as the current contract. Such a level indicates a balanced-to-tight market. A market with more supply available would trade at contract minus a discount.

There is some pressure for a potential reduction in the new monomer price, as naphtha – ethylene’s major feedstock in Europe – has decreased in price since the February ethylene contract settled.

The current ethylene contract stands at €1,077/tonne FD (free delivered) NWE (northwest Europe), and increased by €20/tonne in February.

With some spot PE prices trading barely above €1,100/tonne FD NWE, some grades have been cut back, as the spread between monomer and polymer is unsustainable.

Exports have also become a viable possibility, as other regions provide better netbacks than Europe, said a producer.

The lacklustre spot market for European buyers is a mystery to some sellers, as they see netbacks thrive in other regions.

“Either prices have to come down in Asia, or go up in Europe,” said a large high density polyethylene (HDPE) buyer.

Europe is now a net importer of some HDPE grades and sellers form regions such as the Middle East prefer to get better netbacks in Asia than to sell to Europe. At present, however, there has been little impact on European pricing.

Spot prices have been creeping up for some grades, but at a snail’s pace, and there has been no major price move that could make importers change their mind.

The new ethylene contract for March is expected next week.

Some PE sellers have said they will continue to seek higher prices in the coming weeks, based on reduced margins, but they also targeted this in February, and it proved very difficult. PE prices rose by around €20/tonne in the main, but sellers found it nigh-on impossible to increase the polymer/monomer spread.

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

Focus article by Linda Naylor

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