Europe PE focus shifts towards January as arbitrage opportunities arise

14 December 2017 12:06 Source:ICIS News

CPChem PE unit in Old Ocean

LONDON (ICIS)--The mood in the European polyethylene (PE) market is uncertain as buyers and sellers focus on January and look towards arbitrage opportunities that are arising as Europe remains one of the lowest-priced regions, sources said on Thursday.

Some European spot prices have begun to rise in the past couple of weeks, particularly in the spot high density polyethylene (HDPE) sector, following a stint of breathtakingly-low prices when some were trading below the ethylene contract level.

HDPE had been the weakest PE grade, but now there were export opportunities between regions, and product was leaving Europe.

“HDPE looks stronger … on higher export prices,” said a producer.

Competitive material from North America was not available, as the hangover from Hurricane Harvey still impacted supply.

There was a lot of speculation over whether January’s PE prices could increase in Europe, and opinions were divided.

“We are discussing January,” said a trader. “We think prices abroad are too high, and European levels are too low, so there is a chance of them meeting in the middle.”

New capacity in North America was clearly going to have an impact in Europe, and it was widely accepted that a portion of the new plants was destined for Europe, but the main question was when this would be workable.

Most sources expected little before the second quarter. Local producers were heard to be asking why they would discount their material to sell to Europe when there are better netbacks elsewhere.

This was one of the reasons that many sources in Europe believed there was a chance for prices to rise in January.

“I think there is a chance,” said a large European buyer. “Looking at the balance of things.”

The buyer went on to cite low producer margins (the current ethylene/PE spread is at its lowest point since March/April 2015); lower European prices versus global prices; limited imports from the Middle East, and delays from the US.

There was also the point that January PE prices often go up, said several sources. Low-priced offers that are made in December rarely continue into the New Year, they said.

Arbitrage opportunities, particularly for HDPE, have already affected low-end spot prices, although there is still room to go for Europe to be attractive to importers.

Amid the speculation over January, December business continues, and it looks as though producers are losing more of the ethylene/PE spread they gained in the past couple of years. This loss of spread is also adding to expectations of a potential upward price push in January.

There are no indications yet as to where January ethylene prices might land, but many PE sources do not expect much change to the current contract.

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

Pictured: Chevron Phillips Chemical's (CP Chem) new PE unit in Old Ocean, Texas
Source: Zachary Moore/ICIS

Focus article by Linda Naylor

By Linda Naylor