European PE demand slow as market awaits new ethylene contract

26 October 2017 12:25 Source:ICIS News

Plastics bags

LONDON (ICIS)--Polyethylene (PE) demand in Europe has slowed down in October, and many players are now waiting for the new November ethylene contract to settle to give some direction for next month’s PE pricing, sources said on Thursday.

Buyers have stock, bought earlier in the year, and purchases that had been delayed by train transport issues in Germany are now arriving, said sources, obviating the need to buy more.

Spot pricing has started to erode, and this is also having a cooling effect on demand.

In spite of lower spot prices, however, upstream costs have increased since the October ethylene contract settled, and spot ethylene prices are relatively firm.

“The market is very quiet,” said a producer. “Expectations of price decreases clash with rising naphtha.”

There have been widespread expectations of a November price decrease in the European PE market since September, but selling sources are not at all convinced, and some are even expecting a small increase in the new monomer contract, that will not support downward sentiment.

It does not automatically follow that PE should move in line with ethylene, and while in recent weeks this has been the case, there is no set rule for this to happen, said buyers.

In the spot market in particular prices have been eroding, and this will inevitably have an impact on monthly pricing in November. Not all grades have been affected by significant erosion, and some sellers are confident end-year volume rebates will mean sustained volumes in the latter part of the year.

End-year rebates depend on the buyer reaching pre-arranged volumes with a supplier, and the extra rebate that comes at the end of the year is often applied to the material bought throughout the year, so it is something buyers do not want to miss. It clearly favours buying from suppliers rather than traders, as contracted volumes, not spot, are involved in this business.

If the November ethylene contract does see an upturn in price, most sources do not expect this to be transferred onto PE prices next month, they said, but nor do they expect contracted volumes to fall in price.

“Our producer is confirming all our volumes for November,” said a distributor, “and this is a clear sign that prices are not going up. They aren’t going down either, though.”

The spread between ethylene and PE prices has been largely stable in October, in spite of early attempts to lift it by some sellers, but some sources said that spread could come under pressure in November.

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

Focus article by Linda Naylor

Pictured: Plastics bags. Packaging is one of PE's end markets
Source: Jochen Tack/imageBROKER/REX/Shutterstock

By Linda Naylor