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Europe PE market nervous as players expect lower prices

October 19/2009
October, 19 (icis.com) -- Polyethylene (PE) buyers in Europe are committing themselves to the strict minimum when it comes to buying for October as they envisage only lower prices to come this year, sources said on Monday.

We are living in an environment which is extremely volatile, said a producer.

There is a lot of confusion, even some panic, said another, but expectations are founded on fear that November pricing will be strongly down on October, not any huge oversupply now.

October pricing was still under discussion at many accounts and some producers were aiming to reduce PE prices by the strict minimum this month.

Supply and demand are still good. There is no reason to drop prices beyond the ethylene price drop, said yet another producer. There is trouble hanging in the air, yes, but there is no need to panic.

This producers words were borne out by buyers who were attempting to settle October PE down by more than the ?15/tonne drop in the monthly October ethylene contract, which was settled at ?860/tonne FD (free delivered) NWE (northwest Europe).

I have managed to get a ?40/tonne drop (from September) from one of my suppliers but another is still only willing to give ?20/tonne. We have walked away from each other for the time being, said a large buyer.

There were differences in the availability of PE grades. Low density PE (LDPE), while not being short, was considered to be in a fine balance, and was trading at ?950/tonne FD NWE on a net basis in the spot market.

Linear low density PE (LLDPE) was considered to be weaker as the prospect of imports began to have an effect on the European market.

People expect lower prices, thats sure, said a trader. But I dont have any stock to sell.

Some imports had been seen in southern Europe, however, but not from the long-awaited Middle Eastern new production. South American product was offered at below ?900/tonne FD, but quantities were not reported to be great, and much of the European market was still waiting for large quantities of imported material.

Many saw October as a transition month, when October PE prices would be relatively stable ahead of a sustained price fall in the rest of the fourth quarter, due to easing upstream prices and the expected imports from the Middle East.

Ethylene was widely expected to be down in November, with players talking of a possible ?60/tonne drop from its current level. PE producers were not concerned about a drop in November ethylene, as long as they could maintain the spread between PE and ethylene, however.

The only blot on the horizon for PE players expecting lower ethylene prices in November was the recent spike in crude oil prices. Brent crude was trading above $76/bbl on Monday, but this was partially offset for European buyers by the weakness of the US dollar.

At least one producer had taken advantage of an upturn in Chinese demand immediately after the week-long holiday which ended on 9 October, and sold LDPE and LLDPE directly to China at keen prices. LDPE general purpose grade was sold for lifting at the end of October/beginning of November at $1,180/tonne CFR (cost and freight), while LLDPE was reported offered at $1,150/tonne CFR China.

These levels were well below those offered into Europe. $1,180/tonne was equivalent to ?791/tonne using Mondays exchange rate of $0.67/?1. With spot prices of ?950/tonne FD in Europe in October, sources questioned such prices offered on an export basis, but not to European converters.

Much PE business was still to be settled for October, with some countries, Italy for example, not expecting to have a definitive LDPE October price before the very end of the month.

Theres still some way to go before the end of October so we are taking it easy, said another large buyer.

PE producers in Europe include LyondellBasell, Borealis, SABIC, Total Petrochemicals, Polimeri Europa, Dow Chemical, Repsol, and INEOS Olefins and Polymers.


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