Europe PE net spreads low amid strong cracker margins

LONDON (ICIS)–The spread between the ethylene contract and net spot polyethylene (PE) prices remains low as cracker margins get firmer on the back of lower feedstock prices.

– Cracker margins healthy

– Lower June prices hard for buyers to get

Contracted PE has better margins, but these are now under pressure as upstream costs plummet.

Naphtha closed at $475/tonne CIF (cost insurance freight) NWE (northwest Europe) on Friday, from a high not far short of $600/tonne mid-May.

Such a drop has left cracker margins in Europe strong, but net PE prices continue to move around the contracted ethylene price, and have done for some months.

Contracted PE volumes are yielding better netbacks at smaller and medium-sized accounts, but pressure for the drop in upstream costs to be passed on to PE prices is now strong.

June PE pricing is not yet fully settled. Early June settlers generally accepted a rollover, in line with the rollover of the ethylene contract, but as the month has progressed and only a small rally has been seen in naphtha pricing, and there is no shortage of any PE grade in Europe, buyers are scenting lower levels.

June contracted business is turning out to be difficult for buyers, however, as sellers do not want to give in, when their current ethylene price is not lower.

It was not clear how much buyers would take advantage of the new lower offers for US material, as they expected July to be lower from European sellers, given the sharp reduction in upstream naphtha prices.

“I will buy spot [PE] if it is offered at three figures,” said one buyer, whose current offers were still around €1,050/tonne delivered duty paid for HDPE.

It is not clear how much material is actually physically in place for prompt delivery at present, with some sources saying new imports will only be coming in volume in July.

Imports from the US are mainly for linear low density polyethylene (LLDPE) and high density polyethylene (HDPE) grades.

The spread between net spot prices has been unattractive for European sellers for some time, and has never recovered to the dizzy heights of 2015, when a plethora of plant outages, both at the cracker and PE plant level, tightening supply as never seen before.

Monthly PE business is often settled only at the very end of the month, when momentum is already gathering for the following month, so buyers and sellers have some time to position themselves yet for end-June talks.

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

Pictured: Polytunnels for agriculture made of PE in Granada, Spain
Source: Design Pics Inc/Shutterstock

Focus article by Linda Naylor