Europe PE market skips pre-buying for July despite crude oil surge

LONDON (ICIS)–There have been no signs of prebuying for July polyethylene (PE) in spite of the surge in crude oil prices which can reasonably be expected to have an impact on the upcoming ethylene monomer contract.

Brent crude was trading above $42/bbl early on Friday.

At times, PE pricing discussions for June have been tetchy, although not all of them have been concluded because the practice of retroactive settlements is still rife at many large accounts.

In April and May, buyers were able to enjoy lower prices as the monthly upstream ethylene contract fell by a record amount. Only a portion of this was passed on to buyers, many of whom were struggling to cope with a surge in packaging demand as consumers panic bought goods in the early days of the pandemic.

This strong demand for critical applications continued throughout May, and while demand for some grades remained strong into June, there was not the same urgency for most grades with PE buyers expecting some flexibility from suppliers.

Following two months of price drops in the ethylene monomer contract, the June contract rose by €60/tonne and many PE prices have gone up in line with, and sometimes beyond this amount.

End-month retroactive buyers are flexing their muscles and are aiming  to share some of the increase, at the least, rather than accept it in its entirety. A settlement is expected at the end of the month.

In spite of the upturn in crude prices, June has yet to see a sign that buyers are attempting to get hold of extra volumes ahead of potentially higher prices.

Import offers from the US have been higher, and anecdotal evidence for material auctioned this week revealed an increase that some sources felt was too high to work.

Earlier in the week, several US producers announced a 5cts/lb or $110/tonne increase for July, following a 4cts/lb attempt in June, and this has raised speculation about import prices offered from the US into Europe.

Dow has closed three plants in the Americas in recent weeks, and LyondellBasell also said it was cutting production, although no details were given.

At the end of this week, there were signs that ethylene supply is tightening in Europe.

PE discussions will continue over the coming days, but a new July ethylene contract is not expected before the end of June.

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

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Front page picture source: Oleksiy Maksymenko/imageBROKER/Shutterstock 

Focus article by Linda Naylor