Europe PE Dec prices down sharply on feedstocks, but producers aim to retain margin

Source: ICIS News

2018/12/06

LONDON (ICIS)--European polyethylene (PE) prices are dropping for December, but the amount of the price decrease in freely negotiated accounts is not yet clear.

“I’ve been offered minus 50 [€/tonne],” said a buyer, “but it should end up more than that.”

Ethylene-linked deals will automatically drop by €110/tonne, in line with the drop in the December ethylene contract.

However, most producers are trying to hold on to some margin, and for the moment it looks as though they will be at least partially successful.

The spread between ethylene and net PE prices has been decreasing steadily for months, to the point where some PE grades have been trading below the headline ethylene contract for some time, with the profit remaining in the cracker.

There is a lot of hesitation from buyers when it comes to spot, the situation for the month is not yet fully clear.

Some spot sellers were shocked at the low levels they were seeing for some PE grades, as prices that were already low in November were dropping again for December, and they were unable to compete.

It was in this sector, however, that the situation was murkiest and a wide price range still exists.

Some imported grades of metallocene linear low density polyethylene (MLLDPE) for example, were trading well below €1,200/tonne DDP (delivered duty paid), for example, even for small volumes.

On the other hand, some C4 (butene based) low linear density polyethylene (LLDPE) prices were holding up relatively well at some accounts, but the €1,000/tonne barrier has now been firmly breached.

Low density polyethylene (LDPE) was also still trading in a relatively wide range, but some buyers were hesitating as the situation was not yet fully clear.

Some producers have been going to customers with the idea of a €50/tonne price drop, others are at minus €70/tonne, but a lot depends on the starting-point and grade and producer involved.

Some sellers expected demand to be good in December.

“It could be a win-win situation,” said one producer.

“It gives sellers the opportunity to gain some spread, and it gives buyers the opportunity to buy at low prices.”

Opinions were mixed, however.

Some PE buyers fully expected to be faced with price hikes for January, based mainly on the fact that sometimes prices rise in January and also that current prices are potentially at their bottom, so this could lead to better-than-expected buying in December.

But December is a short month, and January too.

Italy will only start trading again on the 7 January, and other regions will not be in a hurry to get back after the Christmas holidays.

December buying will have to be done by mid-month at the latest, as truck drivers ensure they are back home for Christmas, so most activity will be done in the first half of December.

Fresh imports are expected to arrive in January - mainly LLDPE from the USA - and while initial offers for this product were at November levels, these levels are now looking high.

Rhine water levels are still impacting production, in spite of recent rains, but in the PE sector, there seems to have been little notice of this.

SABIC’s Gelsenkirchen plant in Germany is on force majeure, as is INEOS’ C6 (hexene based) LLDPE plant in Grangemouth in the UK.

However, buying sources do not talk of supply issues, and buyers remain relaxed.

PE discussions will go on for some time.

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

Pictured: 'Polytunnels', made of PE and widely used in the agricultural industry Source: Design Pics Inc/REX/Shutterstock