Europe converters optimistic amid volatile conditions

29 May 2013 15:46 Source:ICIS News

BERLIN (ICIS)--Three major polyolefins buyers remain upbeat over the challenges the European market currently faces and admitted on Wednesday to being more optimistic than circumstances might suggest.

All three buyers were speaking at the second ICIS World Polyolefins Conference in Berlin.

In spite of cost competition from low-cost shale gas polyethylene (PE) production in the US and gas-based PE, polypropylene (PP) production in the Middle East and the management of old assets in Europe, all three converters expected to be doing business with European producers in the long term.

“I am optimistic,” said Ian Robinson, purchasing director at Innovia films. “If you speak to some producers the future is bleak but the average price of propylene over the past three years has been the same. There has to be a way of managing the volatility.”

Volatility has been a major concern of converters and producers alike since 2009, when the quarterly ethylene and propylene monomer contract system was abandoned in favour of a monthly contract.

“I still believe in the European market to give me the material I need,” said Bert Vanwambeke, procurement director, Balta Group, “but I am also looking hard at North America and the Middle East.”

“There is a future for Europe,” he said, “as final customers react to environmental issues - maybe not today as the crisis is still hitting hard, but there will be environmental issues leading to lower ecological footprint and we can make a difference in Europe. Company ethics are also important and we are focussing on this.”

“Volatility creates far more time and effort than ever before,” said Gary Stanley, procurement director of the Britton Group.

“The risks are enormous but volatility can lead to certain types of innovation. We talk much more closely with our buyers about down-gauging, using less material to make stronger, thinner films.”

There have been complaints among European converters than producers have passed all the upstream risk on to them, but there was now optimism that more of a mutual business partnership could be achieved.

“We don’t have to shut up shop yet and all move to China,” said Robinson. “We need to improve partnerships with our producers. We are hopeful of getting some improvement.”

“We have gone through a period of really high volatility ... and we need to work out a solution to be able to manage it.”

PE and PP prices are undergoing another change in May, as production has been cut back to such an extent that an upturn in buying has led to a sharp rise in spot prices.

Low density polyethylene (LDPE) prices are now trading above €1,300/tonne ($1,667/tonne) FD (free delivered) NWE (northwest Europe), from a low of €1,150/tonne FD NWE at the beginning of May.

PP prices have moved more modestly, but homopolymer injection prices are now moving €1,120-1,240/tonne FD NWE, from €1,150/tonne FD NWE earlier this month.

($1 = €0.78)

By Linda Naylor