New US capacities colour Europe PE chain

European polyethylene market players may be adopting a ‘wait and see’ attitude ahead of the monomer July contract price settlement but that approach could well apply to much of the rest of the year.

By the fourth quarter, the potential impact of significant new capacity in the US is likely to be much clearer.

Earlier this year, parcels of low-priced, butene-based (C4), linear low density polyethylene (LLDPE) put the market in a whirl and local sellers were determined to retain market share. No new significant independent parcels have been seen since but the attitude of local sellers will be fascinating to record as the situation changes. Some high density polyethylene (HDPE) contract volumes have had little impact.

Nevertheless, Europe is widely expected to receive volumes from the new plants in the US, particularly if the trade spat between the US and China develops into something much more serious. Producers in North America will have 6.5m tonnes of new capacity to fill by the end of 2019. That is a 42% increase on 2016. By 2022, the increase will be 77%.

Parts of the world other than Europe are attractive to exporters now given Europe’s low relative prices. But the additional capacities in North America, and also those in India, are expected inevitably to assert global downward pressure on prices. The question then remains, for how long?

We are moving into a period of uncertainty as the polyethylene chain responds to the slug of capacity growth for both the monomer and the polymer. But the situation is likely to be considerably more nuanced than some might have expected in the run up to the new capacities in North America successfully coming on stream.

The impact on ethylene in Europe, for instance is not now expected until mid-2019. Ethylene supply is likely to lengthen as demand is reduced. Operating rates would suffer and there has been talk of possible outright closure.

But a heavy turnaround schedule for Europe’s crackers next year will delay the negative and, for those still running, accentuate the positive. Two major turnarounds have been postponed from 2018.

SPRING TURNAROUNDS

ICIS reported last week that Spring 2019 turnarounds have started to throw a shadow over the European ethylene market.

Two of the regions’ largest crackers, with a combined capacity of 2m tonnes of ethylene, and two others will shut down in the Spring. “We have big [supply] crunch in 2019,” a source said, adding: “It is now the big topic.”

Downstream ethylene users are preparing for the shifting supply pattern and could undergo simultaneous maintenance. But the mismatch between ethylene demand and available local supply may offset or delay the impact of the US capacities on European markets.

Europe’s ageing crackers inevitably come further under the spotlight when set against the new facilities in the US and those being built or planned elsewhere. Running older plants hard can present problems, with unexpected downtime and, sometimes, closure.

Producers in Europe have relied in recent years on greater feedstock flexibility and invested heavily to bring NGLs (natural gas liquids) into the region to run their plants. The investment at gas cracker sites has been significant.

Europe is moving into a period, however, when it becomes structurally short of ethylene. Players are known to be considering the next move – add new capacity at existing plants or possibly at a new large-scale facility. In that respect the wait and see approach does not suffice.

Additional reporting Linda Naylor and Nel Weddle

EUROPE POLYOLEFINS PLAYERS WAITING ON MONOMER SETTLEMENTS

Katherine Sale / London

European polyolefins players have adopted a wait-and-see attitude as trading activity has slowed ahead of the July upstream contract settlements. In both the polyethylene (PE) and polypropylene (PP) markets there has been limited activity on the spot market, with prices stable.

“At the moment everyone is waiting to see what ethylene will do,” said one PE trader. “Demand isn’t fantastic, it was at the end of May/start June, but it’s slowed down now. I think everyone has bought what they need,” added a separate seller.

Lower naphtha prices, combined with length in ethylene supply is contributing to the hesitancy for PE buyers, as some eye opportunities for lower prices next month. However, there is also a lack of urgency on the PP side, despite the tighter propylene supply, which has supported PP price increases throughout the month.

There remain some June PE retroactive contracts being discussed, with prices above the monthly monomer increases agreed for some grades. There is already appetite from sellers for margin recovery in July, with any specific targets to be announced following the monomer settlements.

Producers continue to cite poor margins, with the spread between ethylene and PE on some grades low. Sellers have lost margin throughout the year, and are citing much lower levels than in previous years.

Despite the recent hesitance on the spot market, underlying demand remains healthy for both PP and PE. PP supply is finely balanced, with some tightness on certain grades.

The upstream settlements are expected to come before the end of the month, and polyolefins players are preparing for July contract negotiations.