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European PE markets reach a plateau in March, pressure on LDPE mounts

by Manolya Tufan -
  • 27/03/2023 (11:53)
Having reversed up two months ago, regional PE markets are believed to have reached a plateau in March. Sellers and buyers remain split on whether PE markets are on the verge of a softening trend despite vigorous efforts to manage supply-demand balance by rate cuts. As a matter of fact, lower monomer expectations and unpromising demand outlook cast a pall on April expectations.

LDPE lags behind other grades

As mentioned earlier, HDPE and LLDPE have performed better than other grades during March mainly due to reduced import quotas. Spot LLDPE and HDPE deals were closed with increases of €30-50/ton during March, while LDPE was dealt with rollovers and drops in some cases.

According to the ChemOrbis Product Snapshot below, spot HDPE, MDPE and LLDPE prices in Italy have seen increases of around €120/ton compared to late January levels. LDPE prices, meanwhile, rose by only €30/ton during this period.

*Right click the image and open in a new tab to view the full-sized snapshot.

Spot Prices– FD Italy – PE– LDPE– LLDPE–MDPE–HDPE
Participants attributed the weaker scene in the LDPE market to the low demand and comfortable availability despite ongoing production hiccups inside Europe. LDPE is mainly used in food packaging and agricultural film industries, while the agricultural film sector has failed to stage a recovery despite high season. Some sellers needed to cut their offers to speed up their sales.

As the pressure on LDPE is mounting, some players expect to see slightly lower LDPE prices from the very beginning of the month.

LDPE delta with LLDPE, HDPE narrows

This has resulted in the premium that LDPE used to carry over LLDPE and HDPE shrinking considerably. In fact, the deltas were the narrowest in the past couple of years.

The LDPE-LLDPE delta in Italy narrowed to €70/ton from €160/ton in end-January, marking the narrowest gap since October 2020. A similar scene was observed in the LDPE-HDPE delta, which shrunk to €30/ton from €110/ton in end-January, the lowest since April 2020.

Stable to softer voices for April

The majority of players concurred on the fact that regional PE markets have plateaued in March as renewed hike requests will not be absorbed. They foresee a stable to softer trend depending on the grade.

Monomer expectations call for decreases of around €30-50/ton, considering drops in spot naphtha prices. Although global oil benchmarks pared some of their losses following Fed’s rate hike and subsiding banking fears, spot naphtha prices did not follow suit. They are down $90/ton from last month. Meanwhile, spot ethylene prices on FD NWE basis posted €35/ton decreases from early March, ChemOrbis data showed.

Buyers took a waiting stance after stable to softer expectations started to be pronounced more, which is typical in a price-sensitive market. April will be a calm month in terms of business activity due to the Easter and other bank holidays.

The market confidence was also affected by a murky macroeconomic environment triggered by the banking crisis. Financial concerns remain intact and put a brake on spendings as there are no signs of improving demand across many sectors. Pre-buying activities took place in late January before resin prices reversed direction, while end consumption did not genuinely recover. Converters applying discounts on their end product prices confirmed a lack of fresh orders.

What to expect in terms of import volumes?

Previously secured US PE imports are expected to arrive in the following weeks, while arriving quotas may not be large due to conservative purchasing activities for a while. Long lead times and supply cutbacks deterred European buyers from buying imports, while softer expectations also kept them sidelined. Meanwhile, European traders have been doing back-to-back business lately.

Still, Middle Eastern PE plants are expected to resume operations following the end of their maintenance shutdowns. This along with the slowdown in other global markets may lead to a supply relief for import market.
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