Uncertainty haunts European PE market

LONDON (ICIS)–Uncertainty is prevalent in the European polyethylene (PE) industry as upstream prices fall and Asia falters, but new import offers are too high to work with current spot prices, sources said on Thursday.

“The level of uncertainty is so high we can only run short-term strategies,” said a trader.

Spot prices are low in the European market, but holidays and uncertainty have mean that activity is at a minimum and some sources question how long the current low levels can last.

Offers of PE from the USA have increased in price, leading to levels that are higher than those considered feasible in today’s market.

Some high density polyethylene (HDPE) spot prices have been offered as low as €1,100/tonne DDP (delivered duty paid), and while some was still said to be available at this level, buyers could no longer cover fresh sales at this price.

“The latest I have been offered from the US is $1,240 [tonne] CFR [cost and freight],” said a large buyer.

US product has a duty of 6.5% to be added, and with transport and handling costs, this would bring the DDP level to well over €1,200/tonne.

“The current net price is lower than the product in our warehouse,” said the trader.

Such a situation cannot last for long, sources agreed, and spot sellers were expecting an upturn for September.

Even in August some of the low numbers were disappearing, said sources.

C4 (butene based) linear low density polyethylene (LLDPE) spot price ideas were now moving back above €1,100/tonne FD (free delivered) NWE (northwest Europe), with some sales done at €1,140/tonne.

Against this backdrop of higher import offers lies the fall of upstream crude and naphtha prices- principal drivers of ethylene and therefore PE prices.

Brent crude oil fell to just above $40/bbl earlier this week, from a high of $50/bbl in early June, bringing naphtha down it its wake.

Sources expected this to have an impact on September monomer discussions, but most accepted it was too early to speculate on September, even if many converters had to make decisions over purchasing their product early because of holidays.

The situation in Asia was also causing headaches in Europe. Middle Eastern sellers have been favouring Asia of late as European prices have been falling, and netbacks are better to Asia.

Asian PE prices have seen a tumble in the last couple of weeks, and to determine their next move is not easy.

“Asia is a headache to interpret,” said the trader. “You get weekly even daily projections and by the end of the week you are lost.”

Most PE sources were looking forward to holidays to avoid the current conflicting signals in the market, but they said they would be keeping a weather eye out for upstream price movements all the while.

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

Focus article by Linda Naylor