Europe PE monomer-polymer spread could widen further in May

(recasts, clarifying headline)

LONDON (ICIS)–At the end of April, the spread between the ethylene contract and net polyethylene (PE) prices in Europe was at its widest since the beginning of 2018.

In May, sellers will be separately looking to widen this further.

Discussions this month have only just begun; strong demand remains in some contracted sectors, particularly food and consumer, hygiene packaging and medical supplies.

When the European ethylene April contract fell by €200/tonne, suppliers in freely-negotiated contracted business were able to improve the PE-ethylene spread by around €100/tonne.

Now that the May ethylene contract has settled with a drop of €100 /tonne, there have been early offers for freely-negotiated accounts emerging at a variety of discounts.

The offers are grade specific, but so far the maximum decrease has only been €50/tonne.

If these new offers are implemented when business finally settles, it would be the widest PE-ethylene since the end of 2017 when a wide spread, created in 2016 following a plethora of force majeures at the cracker and polymer level, was slipping.

The growing width of the spread should be looked at in the context of what has happened since, as it has fallen into negative territory in some months.

Profitability at the cracker has remained solid, but PE margins have been weak for some months.

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Some sources are already beginning to question how long the strength in some PE sectors can last, as it is not evident in all cases.

Food packaging is slowing from the panic buying that caused a surge in demand earlier this year, although most converters in the sector are still reporting better-than-usual buying interest.

High density blowmoulding in the small bottle sector is also strong, although larger bottles are not faring as well as industrial applications have lost ground.

The low density polyethylene (LDPE) market is where buyers have come under the most pressure to accept lower prices.

A few production issues have curtailed supply at a couple of locations in Europe, and one producer has changed its LDPE application production wheel to eliminate grades with low profitability, according to sources.

While contracted volumes are still going strong, spot activity is very mixed, with some sellers reporting extremely poor interest.

“The market is desolate,” said one trader.

Others are seeing weaker activity.

“We are trying to get rollover in many cases as we don’t have enough volume,” said another.

PE prices will take time to settle while, in the meantime, sellers could get support in May coming from higher crude oil values and tightness in some grades.

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

Front page picture: Plastic packaging for food, one of PE end markets that boomed earlier this year due to panic buying across Europe
Source: Jochen Tack/imageBROKER/Shutterstock

Focus article by Linda Naylor