PE depicts a less robust scene than PP, will European sellers be able to stem the slide?

In Italy and West Europe, spot PE prices have witnessed renewed downward adjustments in response to the weak market conditions. Despite the challenging landscape, signs of cautious optimism are emerging amid the recent rally in freight rates and container shortage. Players are assessing whether the bottom is near after 3 months of bearish run.

The sentiment among PE players has shifted recently, similar to what has been observed in the PP market, albeit with nuanced distinctions. While PP exhibits more potential for an upward momentum, increases may be hard to achieve as PE is a bit weaker in terms of supply-demand balance. Hence, PE may stabilize, at best, on the back of rising freight costs.

Prices hit over 4-month low

Rollover attempts proved unworkable. Sellers lowered their spot prices to stimulate sales, with decreases of €20-50/ton passing on deals depending on the grade. PE film grades posted cumulative decreases of around €150-200/ton or 11-16% since their March peaks. Prices stand at their lower levels since January this year, according to the weekly average data on ChemOrbis Price Index.

In West Europe and Italy, price assessments stood at €1170-1280/ton for LDPE film, €1080-1200/ton for LLDPE C4 film and at €1150-1250/ton for HDPE film, all on FD, 60 days deferred payment basis.

Sellers hunt for signs of market bottom

While drops of up to €50/ton were seen for European material, traders selling non-European origins conceded to smaller discounts of €20/ton. US PE has lost competitiveness given good demand at home and stable pricing policy in the distribution channel.

A market participant remarked, “US material has become less attractive as demand is good in the US and suppliers are not interested to export to the EU. Stocks in the distribution channel are running out, which led to mostly stability.”

The narrowing gap between the spot ranges and non-European material may support regional suppliers. Players rule out sharp fluctuations in the coming weeks, with prices remaining mostly steady to softer. Initial July expectations suggest stability as regional suppliers point to the ongoing impact of rising freight rates.

Reversal seems unlikely in near term

In July, European suppliers may not be able to push prices higher but they may try to hinder the slide amid surging shipping costs from Far East Asia. Port congestions and longer transit times will curb imports to the bloc, affecting deliveries of certain grades from Asia.

As the US ranks the largest PE supplier to the EU27 with a share of 34% last year, the impact may be minimal. PP will be more susceptible to the supply chain disruptions emanating from increasing delivery times and a heavy port congestion in Asia as its dependence on imports from Asia is greater than it is for PE. South Korea accounted for 43% of copolymer imports to the EU27 in 2023, according to data from ChemOrbis Stats Wizard Pro.

PE also lacks support from the supply-demand side, with the potential impact of a lower monomer contract further complicating the landscape. Even though some players reported a cautious pickup in buying interest during June, overall demand remained sluggish, with converters limiting their purchasing volumes given poor end-product demand. Players have noticed pockets of tightness for MDPE grades, which in turn spurred demand for HDPE film. Nonetheless, there is a fierce competition in the market as the fight to capture any limited demand is pivotal. The high season has yet to kick off in the building and construction sectors, as a side note.

The ECB’s first rate cut in five years seems to be just a harbinger of a broader strategy to stimulate economic activity, meaning inflationary pressures yet to abate. Plus, summer vacations start in July in West European countries.

A major market source said, “PP performs better than PE. July PE prices may follow the monomer outcome.”