Will PE prices rise in Europe despite softening oil and naphtha values?

15-Dec-09

Oil prices and eventually naphtha prices have started to soften in Europe. Interestingly, markets in Europe anticipate a hike in Polyethylene prices next month, despite low spot prices in December as inventory levels shrink with producers, particularly in the low density polyethylene (LDPE) sector. Some PE producers in Europe could control stocks at this time of the year by increasing exports, particularly LDPE and LLDPE, as per ICIS. Also, supply in Europe has remained restricted by reduced output at crackers that have are estimated to be running at 80-85% capacity. Demand picked up in the latter half of 2009, (though not at the levels of 2008) after a damp start. The tight supply situation of PE led to expectations of a price increase in January. Hence buyers in the European polyethylene (PE) market are weighing their options to take into consideration several factors that would impact the direction of the market short-term. Monthly prices were still under discussion for December LDPE and buyers and sellers are negotiating a small increase of about €10/ton (US$15/ton) in deals that could conclude by next week. Another factor that could trigger a price hike is an anticipated increase in ethylene prices when the January ethylene contract is settled next week. Falling upstream crude values combined with uncertainty over demand ahead of the lunar New Year holiday in China in mid-February, has led to hesitation from buyers in China. As a result, prices slipped for the first time after many weeks of price increases. Also, as the anticipated supply glut from the Middle East has not materialised as yet, they are expected to have an impact by H2-2010, either by way of direct imports into Europe, or reduction in export volumes from Europe to Asia. Earlier in the month, some large LDPE spot buyers did manage to buy earlier in the month as low as €860/ton FD Germany, but prices have moved closer to €900/ton FD.