Europe’s May PE outlook dominated by upcoming ethylene contract

Bearish expectations for the upcoming ethylene contract are dominating the PE market outlook in Europe, as per ChemOrbis. Retreating naphtha costs as well as spot ethylene prices that have recorded a cumulative decrease of €90/ton since early April are paving the way for the prevailing decrease expectations for May ethylene contracts. Some players expect to see decreases of up to €100/ton in soon to be settled contracts. Spot PE prices have been steadily losing ground in Europe. Italy’s spot market has been retreating since early February, defying the ethylene monomer contracts that posted rollovers in February and a €50/ton increase in March. Subdued demand was the main reason behind the losses of the PE market despite the relatively firm upstream costs. Following the €60/ton decrease that materialized in April ethylene contracts, spot April deals for PE have been mostly wrapped up with monthly decreases of €60-80/ton in Italy. The downward trend has gained speed recently with distributors conceding to larger discounts ahead of the bank holiday on April 25 that many buyers have decided to combine with the Labor Day holiday on May 1. The overall spot market ranges have shown further weekly decreases of €20-30/ton recently. April gentlemen’s agreements have also started to settle €60/ton lower, according to Italian players. Similarly sized decreases are being seen in other European markets. In Belgium, a packaging converter said, “We were initially offered only €30/ton drops from a West European source before our supplier enlarged his discount to €60/ton.” He added that their end demand remains very sluggish. It is clear that demand is well below expectations all over Europe, where limited growth or even contractions are forecast for many of the economies in 2013. There are no major concerns about supply either, according to many players, even though there is market talk that some sellers may close their sales earlier than usual which caused jitters among a few buyers in Italy. With supply-demand dynamics failing to provide a boost to the market and a renewed bearish outcome awaited for May ethylene contracts, players are expecting to see the immediate impact of these factors on PE prices according to ChemOrbis. This is particularly the case in the contract market, where contractual customers could not benefit from the lower prices that arose in the spot market during February and March, when they had to pay rollovers or small increases in line with the outcome of the monomer contracts.