Price and market trends: Europe PE buyers confident of lower Aug prices as upstream falls

15 August 2014 10:52 Source:ICIS Chemical Business

Widespread expectation of prices decreasing alongside the monomer move, and some buyers expect more

Lower naphtha prices have become the focus of the European polyethylene (PE) market, sources said on 7 August.

Naphtha closed at $870-873/tonne CIF (cost insurance and freight) NWE (northwest Europe) on 6 August. As recently as 22 July, it had closed the day at a price of $938-941/tonne.This sharp fall in pricing is leading to expectations from PE buyers of a lower ethylene contract in September.

August buying is expected to be affected by such prospects.

The August ethylene contract, settled the previous week, fell by €15/tonne, and there was strong pressure on PE sellers to relinquish this decrease.

Much depended on the PE grade, as there were still pockets of tightness.“Some producers seem to have given [the] monomer [reduction],” said a producer, “while others are holding back.”

There is a widespread expectation of prices decreasing alongside the monomer move, and some buyers expect more, but most sources agree the level of demand mid-month will play an important role in where end-month prices land.

“They [producers] will look at demand next week and see where they are,” said a buyer.

The buyer expected lower prices to emanate from lower demand brought about by holidays and expectations of a lower level in September, on lower naphtha prices.

Others expected any slippage in prices to reverse when converters come back from holiday.

In any case, no great changes are expected, as supply and demand are relatively well balanced. “There are not many imports and production in Europe is cut. There is some tightness,” said a trader. “This will balance out lower naphtha prices.”

Some low density polyethylene (LDPE) grades are tight, particularly 0.3 melt index, and here spot prices are firm, in the mid-to-high €1,300s/tonne FD (free delivered) NWE. There is also some tightness in the C4 (butene based) linear low density polyethylene (LLDPE) market, but this is offset by less tightness in associated LLDPE grades.

August demand is expected to be lower than July in any case, but lower naphtha prices, as some cracker operators favour liquefied petroleum gas (LPG )wherever possible, to gain better margins, are also expected to have an impact on volumes.

Europe PP prices slip
Meanwhile, polypropylene (PP) prices in Europe have slipped for the first time since November 2013, for contracted business, sources said on 8 August.

In November 2013, gross prices were trading at €1,370-1,380/tonne FD (free delivered) EU ­(European Union), rising steadily until August 2014, to reach €1,495-1,505/tonne, according to ICIS. FD EU prices are subject to double-digit discounts.

By 8 August, sellers acknowledged that August prices were on the decline, following the €20/tonne decrease in the August propylene contract price.

Business is not fully settled for August, but a €20/tonne decrease is widely expected, with some sources expecting more of a fall as naphtha prices crash.

By Linda Naylor