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European PE markets set for 2nd bullish month on rising costs

by Manolya Tufan -
  • 29/06/2020 (04:04)
In Europe, PE markets closed June on a firmer note, marking a reversal of the 3 month-long downtrend. As June draws to a close, players brace themselves for another round of cost-driven increases next month, although approaching summer holidays may put a brake on the awaited hike attempts.

PE closes H1 with increases

After opening the year of 2020 on a stable to slightly firmer note, PE markets saw sharp drops of around 15-20% during the March-May period, as can be seen from the ChemOrbis Product Snapshot below.

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

With the support from rising costs and post-lockdown recovery in demand, June PE deals were closed with increases of €30-60/ton depending on the grade. This pulled PE film grades up from an 11-year low, according to ChemOrbis Price Index.

July signals further firming

Rising costs squeezed PE suppliers’ margins and they made it clear that they will attempt for another round of increases in July.

Despite volatility in crude oil futures, spot naphtha prices on CIF NWE basis surged by 19% from early June, ChemOrbis Price Wizard shows. According to data, spot ethylene prices on FD NWE basis hit their highest levels since mid-March after posting hikes of around €100/ton since the end of May due to upstream gains, tighter availability and firm derivative demand.

Expectations for the July ethylene contracts are mostly calling for increases of around €60/ton, while a few players also share their expectations for larger increases of up to €90/ton.

Some pre-buying seen for LDPE

LDPE film fared better than other PE film grades as demand returned, with buyers accelerating pre-buying activities as recent as last week.

Not only firmer voices for July but also sellers’ move to close their order books lured buyers back to the market to replenish some stocks in a bid to avoid paying further increases.

Will producers be able to boost margins?

Supplies are known to be tighter for certain grades amid a lack of imports both from the US and the Middle East. LDPE is the tightest PE grade due to a combination of regional production hiccups, the lack of competitive imports and better buying appetite.

Based on this, suppliers’ search for margin expansion comes into play once again after they failed to achieve larger increases than the monomer hike for June even on LDPE.

June deals were closed with increases of €30-40/ton for HDPE and LLDPE film grades, meanwhile.

Thereby, players think that it may be possible to see larger hike attempts than the awaited ethylene hike for July particularly on LDPE offers.

Nevertheless, others believe that PE deals can partially reflect possible monomer hikes owing to the fragmented demand outlook. Demand for food packaging, pharmaceuticals and hygiene products leveled off compared to their peak during the confinement period, although these applications still fare better than industrial applications.

Summer holidays, economic concerns weigh on demand outlook

Not all buyers had an incentive to stock up which has led to a stagnant atmosphere. They think that their requirements will be less as they halt production for a few weeks during summer vacations.

It is a question of whether or not converters will follow the traditional patterns or keep up with the “new normal” as some sources reported that converters may continue to run their plants during summer to compensate what has been lost during the lockdown period.

Players also keep an eye on whether or not resurgence of COVID-19 cases will lead to partial resumption of restrictions.

The gloomy economic outlook also put pressure on derivative demand. The International Monetary Fund (IMF) slashed its global growth outlook, forecasting a 4.9% contraction. According to the IMF, growth in the eurozone and the UK will shrink by 10.2% this year.

Despite the foggy outlook created by the pandemic, players mostly concur that demand will determine to what extent awaited increases will be reflected on PE deals.
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