Is PE looking for bottom in Europe?

The PE sentiment has cautiously improved in Europe, with some regional producers closing their order books for April. Players evaluate if the bottom is near amid reduced run rates at upstream plants and hopes for a gradual reopening of European economies. Yet, uncertainties over the COVID-19 outbreak and upstream volatility weigh on the outlook.

Prices hit lowest in over a decade

Most PE grades saw decreases of €100/ton from last month, reflecting the half of the April ethylene drop. Larger decreases of €150/ton were also reported for some grades.

This pushed spot PE prices to their lowest levels not seen since 2009, according to the weekly average data on ChemOrbis Price Index.

Flexible packaging demand performs good

A few European producers have closed their order books for certain PE grades as a result of boosted sales in the flexible packaging sector. Demand for food, pharmaceutical and hygiene products has risen substantially due to the coronavirus. Some PE grades were also tighter amid reduced imports.

It is crucial to point out that overall consumption was hit by the industrial shutdowns that forced non-essential services to be suspended since March.

Refineries, crackers run at lower rates

Upstream, spot ethylene prices indicated a cumulative drop of €55/ton in the past two weeks, according to ChemOrbis Price Wizard. Spot naphtha prices, meanwhile, stabilized at historic lows.

With crude oil prices hovering at historic lows amid a demand collapse, producers decided to cut rates at refineries and crackers. This sparked concerns that feedstock availability may be reduced in the days to come.

Borealis declared force majeure on supplies from its Stenungsund cracker in Sweden as a result of a technical glitch, while it is not yet known when the force majeure will be revoked. This followed the company’s lower operating rates, which is the case for other crackers across the region.

A source from a regional producer said, “It is probable to see pockets of tightness emerging for naphtha and ethylene. We have already felt it during April as our upstream plants were not working at full rates due to the COVID-19 measures and some technical issues. The continuity of activities will depend on the manpower and the state of demand.”

Buyers secure additional volumes

Some buyers decided to secure extra cargos in an attempt to avoid possible disruptions to supplies of certain grades. The closure of order books and lower rates at upstream plants increased the number of price inquiries.

They concurred, “May can be a month of stability as prices already stand at multi-year lows.
Some pre-buying may be seen in the latter part of this month amid attractive prices.”

Sellers rely on gradual reopening of economies

The surge in new cases across Europe has begun to subside, which has pushed some European countries to slowly ease lockdowns to mitigate the economic impact of the pandemic. Signs of flattening curve have allowed partial returns to work in non-essential sectors, while automakers and construction sites are also preparing to resume operations.

This adds to the improving sentiment as the resumption of market activities would increase purchasing activities after around a month long lockdown.

Economic concerns, lower crude weigh on sentiment

Nevertheless, some players approach the cautious shift in the sentiment with skepticism, taking volatile energy markets and economic concerns into account. Oil prices sank to 18-year low, shrugging off the largest production cut ever by OPEC+.

Moreover, the extension of lockdowns in case of increased number of new cases is also within the realms of possibility.