Europe PE buyers under upward pressure as Brent breaks through $70/bbl

LONDON (ICIS)–Higher upstream costs and burgeoning tightness in some polyethylene (PE) grades are leading to strong upward pressure in the European market.

• Crude oil Brent at five-month highs 
• European PE buyers face hikes
• Brexit still a concern for UK players

Picture source: Denis Closon/REX/Shutterstock

The April ethylene contract closed up €30/tonne, and on Monday Brent crude oil broke the $70/bbl barrier the first time since November 2018.

Higher crude and naphtha costs have been putting pressure on ethylene – and subsequently PE – in the past weeks, and this had been supported by tightening in some PE grades.

Tightening of low density polyethylene (LDPE) and some linear low density polyethylene (LLDPE) grades has been a long time coming, prompted to an extent by low prices that have been trading consistently below the ethylene contract – especially in the case of C4 (butene based) LLDPE cast film grade – for several months.

As C4 LLDPE is mainly imported into Europe, the low prices have led to a change in trade flows for better netbacks in other regions.

This would be a temporary measure, according to some sources, although new capacities in the US would inevitably continue to pour out product in the coming months.

CRACKER NIGGLES
Tightness in the LDPE sector is down more to production issues – several persistent cracker niggles – and more recently an unconfirmed plant outage at LyondellBasell’s large LDPE unit at Aubette, France.

In the case of high density polyethylene (HDPE), the change in supply has been less pronounced, with the exception of some injection where imports have been reduced in volume.

The HDPE sector has been steadier and reaping better margins than other grades for some while.

PE business is not yet settled for April, but some has been done, and a pass-through of the €30/tonne increase in the upstream ethylene contract is almost a given, with buyers that have not yet settled admitting that this will be hard to avoid.

Some sellers are aiming for more, however, with targets up to plus €70/tonne in some cases.

It is here where buyers are digging in their heels so far, and it is unclear who will dominate in this struggle.

BREXIT WOES
The situation in the UK is impacting sentiment throughout Europe.

That UK PE buyers have been stock piling material ahead of the initial 29 March deadline is well documented, but the UK also produces some PE.

INEOS has a C6 (hexene based) LLDPE plant in Grangemouth, and SABIC has a large LDPE plant in Wilton.

Both of these plants export material from the UK towards mainland Europe, and the changing dates of the UK’s potential leaving of the EU is causing some concern.

Many April PE settlements will only be finalised at the end of the month, so the full extent of the price hike will take time to evolve.

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

Focus article by Linda Naylor