Europe PE exports to Asia continue on arbitrage opportunities

LONDON (ICIS news)–Exports of polyethylene (PE) from Europe to Asia continue to support the flat European market, sources agreed on Monday.

“We are overbooking for the export market,” said a major PE producer. “If domestic buyers decide they want to come back into the market this month, we will have difficulty supplying some grades.”

A company source said: “PE exports are phenomenal. Our Asian guys are predicting a $30/tonne (€22/tonne) increase for new business.”

European sellers were offering low density polyethylene (LDPE) in the mid-to-high-€700s/tonne FOB (free on board) NWE (northwest Europe).

With freight rates as low as $10/tonne recently, netbacks were better than for some European domestic business.

“We have had spot bids at €780/tonne delivered from some European buyers but we are not going as low as this. We don’t need to,” said one of the PE producers.

Spot LDPE was trading around €800/tonne FD NWE and slightly below in Europe, with demand flat and buyers saying that they were in no hurry to build inventory.

Gross domestic prices were higher, at €890-910/tonne FD NWE, subject to discount, but sources described demand as lacklustre at best.

European prices in May looked unlikely to increase, in spite of attempts by some producers to lift prices.

“If I had to bet, I would bet on a decrease for May,” said one medium-sized PE buyer. “Our demand is really low and I won’t be buying much this month.”

The mood in the European PE market was also affected by one major supplier dropping its prices from April into May.

Buying sources admitted that the producer had been higher than the market in April, but it was clear that it had lost volumes and needed to recover its position.

All PE producer sources stressed that they could not allow the general PE market level to decrease between April and May.

“We are at an unsustainable level of spreads,” said another PE producer, referring to the spread between naphtha and ethylene, and ethylene and polyethylene.

“They are there. Everybody can see them. There is no more meat on the bone.”

Another PE producer said: “There really can’t be a decrease in May. All I can see is that ethylene will go up again in June and the PE market could be facing a significant increase.”

The producer cited high naphtha and oil costs as justification for expectations of a higher ethylene contract price.

Brent crude was trading just above $57/bbl on Monday, with naphtha also high at around $450/tonne CIF (cost insurance freight) NWE.

“With upstream costs so high, ethylene will have to go up. A rollover won’t satisfy anybody. We have to educate the market,” said the producer.

PE buyers could see little justification for higher prices, however.

“We are buying polyethylene, not oil,” said one PE buyer. 

Buyers said they were particularly cautious as they awaited the arrival of several new PE capacities, mainly in the Middle East.

New offers from the Middle East were expected to hit the market during the second half of the year, leading to hand-to-mouth buying globally.

How much these capacities affected Europe depended on the level of demand in Asia.

“I am upbeat about China. I can see demand continuing like this for a while. Investment in infrastructure hasn’t even got to the polymers markets yet,” said one of the major PE producers.

May pricing discussions in Europe were expected to be protracted, given the strength of feeling from both sides of the market.

Producers in Europe include SABIC, ExxonMobil, LyondellBasell, Borealis, Dow Chemical, Total Petrochemicals, INEOS Olefins and Polymers, Polimeri Europa and Repsol.

($1 = €0.73)

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