Europe PE market ponders future direction as holidays take hold

Author: Linda Naylor

2019/08/16

LONDON (ICIS)--The polyethylene (PE) market is quietly active in Europe as the holiday period is in full swing, but visibility is low, as those players that are still working speculate on the short-term future.

- Market uncertain

- Planned cracker outages begin

- More US HDPE imports

“It’s very difficult to read at the moment,” said a trader.

Spot business has been very quiet, which is what most players would expect in a market with no supply issues, but demand in the contracted arena has been stronger than expected for some grades.

Low density polyethylene (LDPE) demand in particular has been good for contracted volumes, while high density polyethylene (HDPE) moves along steadily in the contract market but is nervous in the spot sector as talk of US volumes at low prices is widespread.

Levels towards €900/tonne DDP (delivered duty paid) are said to be available for end-August/September delivery but the amount of material on offer is not clear. Several new US PE plants have opened in recent months, with HDPE being one of the main offerings for export.

The application of 25% import duties on US HDPE into China means that US sellers need to find alternative destinations. Linear low density polyethylene (LLDPE) is subject to the same duties. Import duties from the USA into Europe are 6.5%.

The US has consequently dramatically scaled back exports of HDPE and LLDPE to China in the face of 25% tariffs, and has ratcheted up exports of LDPE to China. From January through May 2019, the US exported over 138,000 tonnes of LDPE to China - more than triple the almost 43,000 tonnes from the year-ago period and much higher even than the 102,000 tonnes exported to China for all of 2018.

New and upcoming US PE capacity

Company Capacity ’000 tonnes/year Grades Location Start-up
DowDupont Chemical 125 Bimodal HDPE/MDPE Seadrift, Texas; St Charles, Louisiana 2018
Sasol 470 LLDPE Lake Charles, Louisiana, US Q1 2019
Sasol 400 LDPE Lake Charles, Louisiana, US Q3 2019
Formosa Plastics 800 HDPE, LDPE Point Comfort, Texas, US H2 2019
LyondellBasell 500 HDPE La Porte, Texas, US Q3 2019
ExxonMobil 650 LLDPE Beaumont, Texas, US 2019

All low-end PE spot levels in Europe trade below the current headline ethylene contract price of €1,010/tonne FD (free delivered) NWE (northwest Europe).

Some players have been speculating on whether there will be an upward price push for PE in September, based on the expectation of stronger demand which is normal for the season.

The additional element of the second phase of 2019’s cracker shutdown programme now just beginning is seen as a potential firming factor in the PE market, as ethylene supply could be compromised as crackers go down for planned maintenance. Sources are very aware that supply was not affected during the first phase, however, so the second phase is sometimes viewed with some scepticism.

Concerns over the economy also lead to hesitation in some cases.

“There are signals of a weaker economy, and our order books not as fancy as they should be,” said a buyer.

Lower crude and naphtha is also adding to the element of uncertainty in the market.

The situation should become clearer as players get back to the market, and a new ethylene contract emerges for September.

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

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Picture source: Markus Lange/imageBROKER/Shutterstock

Focus article by Linda Naylor