Price and market trends: Europe PE buyers and sellers square up for July discussions

17 July 2014 18:14 Source:ICIS Chemical Business

Some PE grades are tight, particularly LDPE, and some buyers are concerned about the troubles at SABIC’s UK plant

Polyethylene (PE) players in Europe are gearing up for July pricing discussions that are likely to be protracted and difficult.

Buyers are caught between the prospect of not being able to get hold of enough product and the fear of having too much in stock as they see upstream naphtha prices fall and PE prices high, sources said on 11 July.

“It’s very contradictory,” said a trader. “Customers are worried. They are scared of having too much product and not enough at the same time.”

Some PE grades are tight, particularly low density polyethylene (LDPE), and some buyers are concerned about the troubles at SABIC’s 400,000 tonne/year plant in Wilton, the UK, that has been down for planned maintenance since May, according to buyers, and has not yet returned to production.

SABIC declared force majeure on LDPE on 8 July, following its Wilton problems, and issues also in Geleen, the Netherlands.

Another producer, Dow, closed its LDPE order books on the same day, as it was sold out.

In spite of this tightness, some spot sellers said they were not receiving large orders for LDPE. Prices are clearly higher, but buyers are cautious, as prices reach their highest level in 2014, and there is a fear of buying too much stock as prices could fall in August.

The fall in naphtha prices is leading to expectations of a lower August ethylene contract, and buyers would expect any reduction in August ethylene to be passed on to them.

“PE prices can go up again in August,” said one major producer, however, “even if ethylene [contract] goes down. Product is tight and availability is reduced.”

Availability of imports was expected to be affected because of Ramadan, as has happened in recent years. Imports to Europe throughout 2014 have been reduced because of the increase in import duties from the Middle East on 1 January 2014.

Netbacks into Asia have been better for importers but the current spate of increases in Europe could lead to more imports, said sources.

“It takes a long time for product to be diverted,” said a producer. “Prices in Europe have to go up, Middle Eastern producers have to recognise it. Decisions take time. It’s not for tomorrow.”

Linear low density polyethylene (LLDPE) C4 (butene based) is also on the tight side, because of fewer imports, better demand, and its association with LDPE, as it can be partially substituted in some film applications.

High density polyethylene (HDPE) is not as buoyant as other PE grades, although pipe and film sectors are buoyant in July.

HDPE film demand is benefitting from shortages in the medium density polyethylene (MDPE) segment, where availability was already tight before LyondellBasell called force majeure on deliveries from its plant in Wesseling, Germany.

Other HDPE grades are still moving up in price, but some large buyers are attempting to put pressure on producers by reducing volumes in July.

It is not clear whether such tactics will work, and sellers are still targeting increases in line with, or even above, the €50/tonne increase in the July ethylene contract. The increase of the July ethylene contract price at a €50/tonne increase has led to sellers targeting hikes in excess of this number, generally between €60-80/tonne.

“These prices are too high,” said one buyer. “We’re going to struggle to get increases through because nobody expects prices to stick.”

PE monthly discussions are notoriously protracted, as there are still many retroactive pricing agreements in place, particularly in the LDPE and LLDPE sectors.

Sellers are confident of covering the July ethylene contract hike, and more in some cases, but naphtha is expected to remain a strong focus of interest for all players, particularly when it comes to where prices will land in August.

Naphtha closed at $934-936/tonne CIF (cost insurance freight) NWE on 10 July, down from a high of $974-976/tonne during the week ending 20 June.

LDPE is currently trading at €1,350-1,380/tonne FD (free delivered) NWE (northwest Europe) on a net basis; LLDPE C4 is at €1,310-1,330/tonne, and HDPE generally still moves below €1,300/tonne FD NWE.

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

By Linda Naylor