Unprecedented price volatility seen by European polyethylene and polypropylene converters

27-Aug-12

European polyethylene (PE) and polypropylene (PP) converters are becoming increasingly frustrated at what many see as unprecedented price volatility, as per ICIS, as they prepare themselves for another big hike in September amid a rising spot market and higher upstream pricing. PE and PP pricing has been erratic throughout 2012. Buyers face yet another big increase in September, amid soaring naphtha prices and restricted supply following a surge in demand that has seen converters restocking. Naphtha closed the day at US$972-974/ton CIF NWE on Thursday, up from a low of US$683/ton CIF NWE during the week ending 22 June. This surge in pricing since June has sent producers searching for increases in the PE and PP markets, to recover lost margin, and buyers, whose inventories were very low, have had no choice but to comply. In Q1-2012, low density polyethylene (LDPE) monthly prices rose by over €300/ton; by the end of June 2012, they had fallen by €200/ton; a 170/ton fall in July, rallied by the end of July, and have risen by up to €200/ton in August. Some sources are now talking of more €200/ton hikes in September, while others think a milder increase might be more appropriate. LDPE net prices are trading at around €1350-1400/ton FD (free delivered) NWE (northwest Europe) in August, from a low of €980/ton FD NWE, at the end of June. Similarly PP homopolymer injection net spot prices were at €1000/ton FD NWE, and are now approaching the €1300/ton FD NWE level. Buyers find it difficult to cope with the volatile prices and pass them on the end users. Producers, however, say they cannot continue to supply polymer at current levels without losing money, so increases are inevitable. To procure extra quantities ahead of September has been out of the question for all buyers. “Fundamental demand is not there,” said a buyer. “This is all a matter of inventory.” So if everybody is aware of the danger of the current delicate price situation, will measures be brought in to ensure that another big price swing doesn’t take place when cracker margins begin to improve again, or will improved margins prove too tempting for cracker operators?