Europe PE suppliers’ April spread improves but mood cautious

14 April 2014 12:37 Source:ICIS News

Focus article by Linda Naylor

LONDON (ICIS)--European polyethylene (PE) producers’ spreads over ethylene have improved in April, but not by the amount they had envisaged, in spite of tightness in some grades, sources said on Monday.

Sentiment in the European PE market has fluctuated throughout April and spot prices have reacted accordingly.

End-March low density polyethylene (LDPE) levels of €1,300/tonne FD (free delivered) NWE (northwest Europe) are now only achievable at smaller accounts, but the low levels of early March, that reached €1,230/tonne in some cases, are also no longer on offer, even at large accounts.

LDPE availability is tight, and some producers are considering closing order books for April, such is the level of inventory.

“We are not doing any more spot activity,” said one such producer.

Those with lots still available were said to be selling at €1,250-1,280/tonne FD NWE on a net basis. The low end of this range was possible only for producers, as most traders could not compete with such offers, however.

Several said they were not able to replenish volumes at a workable price.

Sources are already looking at May pricing, and the situation in the upstream ethylene and naphtha markets is leading to different expectations for next month. PE has followed ethylene contracts for some time now, but the contradiction between the spot and contract pricing in the ethylene market is leading to some confusion.

The April ethylene contract settled down by €15/tonne, at €1,165/tonne FD NWE. PE producers in April have managed to hold on to some of the €15/tonne, particularly in the LDPE and linear low density polyethylene (LLDPE) markets, and some are still targeting increases over March PE prices.

Spot ethylene is being sold much below the contract, however. Spot offers are below €900/tonne FD NWE, and PE buyers question how some PE producers can still talk of a potential increase in the May ethylene contract, with spot so much lower than contract.

“It’s naphtha that concerns us, not ethylene, and naphtha is high,” said a producer. Naphtha is a principal driver of ethylene.

Naphtha prices have remained firm for some weeks, and on Monday morning were trading at $929-931/tonne CIF (cost insurance freight) NWE.

LDPE remains tight with producers, and while traders are not overstocked, most are thought to have some inventory.

Sentiment in the LLDPE sector has also shifted during April. Sources considered availability to be tight in the C4 (butane-based) LLDPE market in early April while now it is seen as available, if not plentiful. Spot prices have drifted down to €1,240-1,250/tonne FD NWE, from €1,260-1,270/tonne. Lower levels, reported in early March, are no longer offered.

It is in the high density polyethylene (HDPE) sector that producers have not fully managed to retain the full €15/tonne of the ethylene contract decrease, said sources.

“It was clear after a couple of days that we couldn’t get any increase,” said one HDPE pipe seller.

HDPE demand has improved, however, following a period of months of stagnant volumes. Sources said that fewer imports have supported volumes with European producers in 2014, but there was also a feeling that an upturn in demand was also down to some improvement in the European economy.

The May ethylene contract is not yet under serious discussion but it is expected to have its usual impact on PE pricing.

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

By Linda Naylor