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Europe PE, PP prices hold but lower upstream costs, US product could upend market

Author: Linda Naylor

2019/06/12

LONDON (ICIS)--More polyethylene (PE) is expected to arrive in Europe in greater volume as capacities keep coming on stream in the US and elsewhere, particularly if trade flows continue to be affected by the US-China trade war.

- PE, PP prices supported by planned cracker outages

- Less-than-expected US PE arrives to Europe’s shores

- Lower upstream costs to influence sentiment

The extent of that US-origin PE influx, and the timing, will be key for European prices.

Most of the US' new capacities are destined for export markets; while the destination of choice is Asia, political tensions on the back of the trade war, as well as the sheer volume of material coming on stream, mean that some of that material is bound to arrive in Europe.

In 2019, an extra 6.5m tonnes/year capacities for PE, or 41% of US capacity, will come on stream, and this will boosted to 12.1m tonnes/year by 2022.

By the end of the year, other large PE plants are due on stream in Russia, Malaysia, and China, with several smaller plants due on stream elsewhere in Asia.

A solid swathe of polypropylene (PP) capacity is also due on stream in China, Russia, Malaysia, and India this year.

IMPACT IN EUROPE
Until now, both European PE and PP have been shielded to some extent by the planned cracker maintenance turnaround season during the second quarter, supporting prices for both products as buyers bought just-in-case volumes for fear of supply disruption.

As it happens, there have been no disruptions, so an element of destocking, particularly at smaller accounts, could be expected.

However, the market has only gone through the first part of the 2019 planned cracker outages. A second phase will begin later in the year, with some sources expecting September to be another “crunch month” for propylene supply.

These outages could support PP and PE prices to a certain extent in the second half of the year, but more PE imports into Europe are likely.

The recent crash in upstream naphtha prices is also likely to affect pricing, making Europe an unattractive place to export to.

The current gap between Asian and European PP prices leaves the arbitrage window right open, and more imports can also be expected for PP.

So far in 2019, PE and PP prices in Europe have been affected by similar circumstances; however, PP has not experienced the influx of – or, strictly speaking, the expectation of – imports from the US to the same extent than PE imports have.  

PE prices, however, have remained stronger than many had expected it to so far in 2019.

US-CHINA TRADE
From October 2018 through February 2019, average monthly US exports of high density polyethylene (HDPE) to China were down 58% year on year to 10,611 tonnes, according to the ICIS Supply and Demand Database.

For linear low density polyethylene (LLDPE), US export to China fell 62% to 9,218 tonnes.

The US now sends far more LLDPE to Vietnam than to China.

In spite of such data, there has not been a notable increased flow of US LLDPE exports into Europe, although some sources have said there have been “incursions” of product, but these have been limited.

In May, LLDPE C4 (butene based) spot prices rallied from former lows.

Some of the lack of visibility of increased imports to Europe could be that volumes from the region’s main C4 LLDPE importer, Saudi Arabia, have been lower.

Traders have also sometimes been reticent to take volume in a market that could easily fall, leaving high-priced stock on their hands.

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PE and PP are used in packaging and the manufacture of household goods. PE is also used in agriculture and PP in the automotive industry.

Focus article by Linda Naylor

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