Europe PE buyers target spread erosion for November sellers

01 November 2017 12:45 Source:ICIS News

LONDON (ICIS)--Polyethylene (PE) buyers in Europe are targeting some penetration into producers’ ethylene/PE spread in November following a fairly widespread follow-through of the monomer hike onto PE prices in October, sources said on Wednesday.

The November ethylene contract settled last week at a rollover from October, and some PE buyers saw this as their opportunity to grab back some of the monomer/polymer spread.

The spread has dropped throughout most of 2017, rallying in September, and continuing through October.

In spite of the September spread improvement, the current gap between the two reference points of around €450/tonne remains well below the high of €650/tonne of April and May 2016, but well above the spread in September and October 2014, when it was just €305/tonne.

The above chart shows the end-September delta between the ICIS low end, low density polyethylene (LDPE) FD (free delivered) EU gross prices, compared to the prevailing ethylene contract price.

Sellers are keen not to give away margin, and insist the low margins of 2014 were entirely unsustainable.

In support of that argument, they point to a raft of permanent PE closures in Europe that made on the back of poor margins.

Company PE grade Location Capacity '000 tonnes Status Date closed
Dow HDPE* Tessenderlo, Belgium 190 Closed End 2012
Versalis LLDPE** Priolo, Italy 150 Closed Sep 2013
LBI HDPE Wesseling, Germany 100 Closed Q3 2013
Eni LDPE*** Gela, Italy 150 Closed End 2013
Borealis HDPE Burghausen, Germany 175 Closed End 2014
Total HDPE Antwerp, Belgium 70 Closed End 2014
Repsol HDPE Puertollano, Spain 90 Closed  Q2 2015

*high density polyethylene, **linear low density polyethylene, ***low density polyethylene

October demand was disappointing for some sellers, however, particularly distributors and traders, but there were also some spot deals circulating from producers.

“There’s a lot of pressure to buy from European producers now,” said one buyer.

In contrast to expectations of lower prices in November, crude and naphtha prices have spiked, leaving naphtha in the mid-$500s/tonne CIF (cost insurance freight) NWE (northwest Europe) mid-week.

Against such a backdrop, sellers were expected to withhold from dropping contract prices as much as possible, and end-year rebates could lend them some support in this task, said sources.

Spot prices have been eroding in the past couple of weeks, and there was still talk of low-priced spot deals for certain limited grades at the odd large account.

In the wider PE spot market, there was speculation over how low prices could go, as new offers from the usual destinations were not low enough to allow much more erosion, said spot sellers.

Expectations of low-priced material from North America were still widespread, but so far none was arriving in Europe, delayed by Hurricane Harvey.

Now that weather issues are no longer causing problems in that region, PE sources in Europe expected workable material to be offered into the region during the first quarter 2018.

Monthly PE pricing is expected to continue throughout the month, as usual, but some early settlements are expected to show the way in the coming days.

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

Pictured: food packaging, one of PE's end markets
Source: Food and Drink/REX/Shutterstock

By Linda Naylor