Price and market trends: Europe PE sellers eye margin recovery

07 February 2014 10:15 Source:ICIS Chemical Business

January saw a higher-than-ethylene contrast increase, so buyers will be looking for its full €40/tonne cut in February

Polyethylene (PE) players in Europe are looking towards February now that the new ethylene settlement has been finalised at a €40/tonne decrease, sources said on 31 January.

“We still haven’t taken any real decision for February yet,” said one producer, “but the message is clear – spread improvement.”

Several other PE producers said they would attempt to retain some of the €40/tonne drop next month.

Buyers did not necessarily agree. “We would like some margin improvement as well,” said one.

January contracted prices rose by €20-30/tonne, more than the €15/tonne rise in the January ethylene contract.

Spot prices had already begun to fall before the February ethylene contract settled, and some buyers said at least one major low density polyethylene (LDPE) had been selling some LDPE grades at €1,300-1,320/tonne FD (free delivered) NWE (northwest Europe).

This was not confirmed from the seller in question but general spot LDPE prices have fallen to this level, from a high of as much as €1,370/tonne earlier in the month.

There is little expectation of a further fall from these levels, however, as sources said the monomer fall has already been taken into account. Monthly pricing is a different matter.


Cautious buying
Following the higher-than-ethylene increase in January, buyers will be looking for its full €40/tonne reduction in February, several said, but it is too early to tell where prices will land and most of the talk is seen as posturing ahead of serious negotiations.

One buyer wryly commented that the increase taken in January is likely to match the decrease in February, and many hours of discussion could have been saved with stable pricing for both months.

Buying is very cautious, and is expected to remain so in ­February. Wider expectations of lower crude oil prices, as Iran comes back into play in the ­global market, would impact naphtha and therefore ethylene and PE prices, so naturally sources are not eager to build ­inventory under such circumstances.

“Given today’s circumstances I cannot see March pricing moving up, so I will carry on buying the minimum I can get away with,” said another buyer.

Ongoing discussions
On the last day of January many PE buyers are still discussing January pricing.

Retroactive discussions are still alive at many large accounts throughout Europe, particularly in the LDPE and linear low density polyethylene (LLDPE) sectors.

No great change is expected from the current position, with increases of €30/tonne common in the LDPE and LLDPE markets, and €20/tonne in the high density polyethylene (HDPE) sector.

Europe PP market considers impact of propylene rollover
Polypropylene (PP) buyers and sellers are digesting the news that the February propylene contract has rolled over from its January level of €1,130/tonne FD (free delivered) NWE (northwest Europe), several said on 30 January.

If PP were to follow the upstream monomer movement and roll over into February, it would be the first month that has seen no price change since May 2011, ICIS records show.

The last rollover in the monthly propylene contract was in July 2013, when the contract remained unchanged from its June level of €1,040/tonne FD NWE. PP prices shifted up by only €5/tonne at the low end of the range that month, with the monthly homopolymer injection price trading at €1,335/tonne FD NWE, from €1,330/tonne in June, on a gross basis, subject 
to discounts.

Spot prices were trading at €1,200-1,240/tonne on a net basis at the time. On 30 January they were assessed in the mid-€1,200s/tonne FD NWE.

The rollover in upstream monomer comes at a time when PP producers still see their margins as low, and a rollover in propylene is unlikely to help them improve margin, some sources said.

January 2014 PP prices rose by €30/tonne on the whole, €10/tonne more than the increase in the January propylene contract price.

Sellers had been looking for more, particularly as import duties from established importers, several of whom have production facilities in Europe, increased by 3.5% on 1 January 2014.

Sources estimated the increase in cost of this move to be around €45/tonne, and some are still hoping to recover in February what they lost in import duties.

It was early to gauge market opinion for February, but initial responses showed it might be hard for sellers to push prices up next month.

“Their [producers’] margin improved in January, and while demand is not bad, it’s not great,” said one buyer. “There’s an inertia in the market. They are trying to push from a standing start.”

Other sources acknowledged that an upward price move could be hard to achieve with upstream prices stable, and the supply/demand balance reasonable.

Price discussions are expected to begin in earnest when the month begins.

By Linda Naylor