Lower naphtha prices are weighing heavily on sentiment in the European polyethylene(PE) and polypropylene (PP) markets as buyers hold off taking more volume in April in anticipation of lower prices in May, as per sources in ICIS.
April PE and PP monthly prices are on the decline following the €50-60/ton (US$66-79/ton) drop in the April monomer contracts, but lower naphtha prices are leading to expectations of another decrease in May contracts that converters expect to be transferred on to polymers. Naphtha was trading at US$813-825/ton CIF (cost insurance freight) NWE (northwest Europe) on Friday morning, its lowest point for at least nine months.
Lower naphtha prices mean better margins for integrated cracker operators so discreet PE spot offers from European producers are not uncommon at large accounts, but weak polymer demand in Europe and beyond is adding to expectations of lower prices to come. “We are being offered the full monomer reduction for April and another reduction if we take more volume, but we can’t do that without building stocks, and May will definitely be lower,” said a large PE buyer. “Sellers complain about low margins but then they push volume. You can’t keep margins and push volume at the same time,” said another polyolefin buyer.
Production is cut back throughout Europe, in some cases to 80%, but sellers still have difficulty placing volumes. “April was a short working month because of Easter and there are several holidays in May in Europe that won’t help demand,” said a producer. Imports of high density polyethylene (HDPE) in particular are also adding to downward price pressure, but the main concern is over demand. Spot low density polyethylene (LDPE) prices have been heard in the low €1,200s/ton FD (free delivered) NWE (northwest Europe) this week. They were at €1,320-1,350/ton in early March. PP spot prices are also down, but to a lesser extent, to around €1,190-1,230/ton for net homopolymer injection, from a level of €1,230-1,260/ton FD NWE a couple of weeks ago.