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LDPE sees larger gains on elusive supply in Europe

by Manolya Tufan -
  • 18/09/2023 (02:14)
PE markets extended gains into the second month in West Europe and Italy, with different size of increases passing on deals depending on the grade. LDPE prices posted hikes of up to €150/ton on low inventory positions, while other PE grades mostly posted increases of €75-100/ton in line with higher ethylene settlement.

Derivative sectors have not staged a recovery despite the end of the summer season, pressured by another round of bearish economic data. Demand has been patchy due in part to the pre-buying activity ahead of the reversal of the trend.

Diminishing stocks justify larger LDPE hikes

Despite lingering weakness in demand, diminishing availability has been the main culprit behind the larger gains in the LDPE market. Major suppliers depleted their excess stocks in the past couple of months, while production hiccups on top of run rate cuts also led to elusive LDPE supplies.

As ChemOrbis Production News Pro shows, European markets are estimated to see around 185,000 tons of LDPE output lost in September amid run rate cuts and shutdowns. It is estimated that regional markets will record a similar production loss to September in the last quarter.

Import suppliers also raised their offers to Europe, encouraged by firmer spot levels. Still, buyers refrained from import cargos as they lost competitiveness. Although non-European origins continued to form the low end of the spot ranges, they saw increases of at least €75/ton.

LDPE being a shade tighter and a lack of competitive import offers paved the way for increases of up to €150/ton on September deals. While sellers did not step back from their initial LDPE offer levels, they had to step back slightly from their initial LLDPE and HDPE offers. Indeed, a seller said that larger increases failed to pass on HDPE deals.

Critically low levels trigger price corrections

LDPE posted sharper decreases during the extended correction period, when the pandemic bubble completely burst, stretching as far back as May 2022, according to ChemOrbis Price Index. Prices in Italy and West Europe hit below the critical €1000/ton FD level in June-July 2023 after seeing cumulative drops of 56-58% since then. LDPE drops were sharper than 49-52% for LLDPE and 46-49% for HDPE grades from peak-to-trough.

Producers were striving to recover their margins after conceding to sizeable decreases, which coupled with rising costs paved the way for long-awaited upward corrections.


LDPE regains premium over LLDPE in Italy

Price assessments in Italy and West Europe stood at €1100-1200/ton for LDPE film and HDPE film, at €1080-1180/ton for LLDPE C4 film and HDPE b/m and at €1080-1200/ton for HDPE inj., all on FD, 60 days basis.

LDPE prices came at par with other grades or unusually traded at a discount to them in the past couple of months, mirroring the intensifying pressure for a correction on LDPE prices.

That is to say, LDPE prices had more room for increases to be back into balance with other PE grades. LDPE prices in Italy -currently trade with a slight premium of €20-25/ton over LLDPE C4 film and HDPE b/m, while they still stand slightly below HDPE film. In West Europe, LDPE prices mostly came at par with other grades except for HDPE film.


Will it be a temporary rally?

In a nutshell, the main drivers of the recent upturn have primarily revolved around supply limitations and cost-related factors.

October expectations hint at a slightly firmer trend, supported by a strong energy complex. Monomer settlements are expected to come higher for October under the pressure from stronger energy complex as well as spot ethylene gains. According to ChemOrbis Price Wizard, spot prices rebounded sharply to hit €800/ton FD NWE in the week ending September 15.

Yet, the outlook for late Q4 remains foggy due to the year-end destocking activity and weak macroeonomic indications. The contraction in the services industry is a reason to be concerned as higher interest rates reduced consumer and corporate demand. This made players question as to whether the market is experiencing a short-lived burst of upward movement following an extended downtrend.
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