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Margin expansion targets push Italy’s PE film markets to multi-month highs

by Manolya Tufan - mtufan@chemorbis.com
  • 08/02/2024 (08:19)
In Italy, PE players have been receiving February offers with sharp increases from regional producers, regardless of the marginal hike in the ethylene settlement. The absence of import sources and trimmed allocations encouraged suppliers to target margin expansion after bearing negative margins for several months. Early offers hit multi-month highs, accordingly.

PE film prices highest since March-May

Initial offers emerged with increases ranging between €100-150/ton and €200-250/ton, depending on the account and starting point. Official announcements from major European producers mostly came €150-250/ton higher.

After prices had rebounded from around 4-month low as of January, they reached their highest levels since March 2023 for LDPE and LLDPE C4 film and May 2023 for HDPE film. Cumulative gains since reversal hit around €200-300/ton, ChemOrbis data showed.

FD–Italy–LDPE–LLDPE–HDPE

Meanwhile, LDPE film boosted its premium over LLDPE C4 film after trading at a discount to the latter for 4 months between May-August 2023 amid weaker LDPE demand. LDPE regained its premium over LLDPE from September to currently trade €40/ton above this grade compared to €15/ton a week ago. LDPE prices started to trade above HDPE film from January after trading below this grade for most of last year, with the most recent delta standing at €65/ton.

PE sellers’ margins turn positive

As February ethylene settlement indicated only a minor increase of €5/ton given poor demand conditions during January, strong February hikes sought on PE will help suppliers recover their margins lost in the past months to a great extent.

The production margins for PE film grades were in the negative territory in West Europe, even though margins visibly improved in January. In January, PE deals were closed with large increases despite stable ethylene settlement. This will be the case in February as well, which will surely help productions margins turn positive.

Although the month is far from over and the monthly average prices of ChemOrbis are not yet completed, current LDPE, LLDPE C4 film and HDPE film prices stand above the February contract level. These grades had traded at a discount to the ethylene contract level between May 2023 and January 2024.

FD–NWE–LDPE–Ethylene

Regional supply also declines

In production news, producers in Central Eastern Europe have either planned shutdowns or faced production issues for various reasons. HIP and Unipetrol will run planned turnarounds at their plants in March-April, which keeps their volumes to the spot market limited. MOL, Unipetrol and Slovnaft had earlier declared force majeure on their PE output between October 2023 and January 2024.

Hence, West European producers saw better buying interest from the region. Plus, West European suppliers have short supplies due to a lack of ethylene from Gelsenkirchen cracker, while Versalis will be able to supply HDPE b/m and HDPE inj. only in March. These provide suppliers with the leverage to boost their margins.

No jitters despite disrupted supplies

The PE market is well balanced despite some production hiccups within the bloc or disruptions caused by diverting away from the Suez Canal, participants concurred. Still, the supply outlook remains tight, considering the lengthy Cape of Good Hope transit, which keeps March expectations also firm.

“Market fundamentals locally do not justify an upturn like this one, bearing in mind that demand in derivative sectors is not robust. We guess the ripple effects of the Red Sea diversions have been factored in as lead times are longer than usual and it will take time for freight rates to subside when vessels get back on track. This would underpin resin prices in the following months,” a player opined.

A distributor commented, “Producers aim to regain their margins. Demand is patchy as buyers are still searching the market. The question is how long the Red Sea crisis will last. As long as it continues, the firmer trend will likely be intact.”

Speaking of modest demand, pre-buying activities have also kept some buyers sidelined so far. While some buyers expect revisions on the upper ends of the ranges in H2 February, others who need to buy will have to pay such large increases. Consumers will suffer the most as spiking ocean freight rates have to be passed onto the consumer, not to mention the arrival of imports in April at the earliest.

A seller affirmed, “We think European producers will be able to achieve strong hikes on deals amid short supplies in the import market.”
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