PE prices see larger drops than C2 in Italy, unlike West Europe

In Italy, PE sellers had to concede to decreases surpassing the ethylene drop in the latter half of November, matching earlier expectations. Participants flagged that deteriorating demand outlook accelerated destocking activity towards the year-end. In West Europe, however, decreases mostly matched the ethylene drop, with producers reporting limited availability.

November has seen bears return to the market after three months of bull market conditions, partially supported by rising ethylene contracts. However, an accumulation of stocks amid lethargic demand came to the forefront in Italy. Initial offers had to be revised down to spur sales, but to no avail. Although November appears to be the last month of active purchasing activity, converters continued to stick to the sidelines or source only their basic needs with a lack of visibility with regard to end orders and projections for a slow start to Q1.

LDPE comes under pressure

LDPE outperformed other PE grades during the uptrend, posting stronger increases amid reduced availability. Indeed, LDPE film prices in Italy posted cumulative increases of 31% from H2 July to late October as opposed to increases of 22% for LLDPE C4 film and 14% for HDPE film and b/m. However, easing supply levels exacerbated the downward pressure on this grade, with spot prices reportedly emerging below the €1100/ton FD Italy level.

Competitive Non-European LDPE exacerbated the pressure on regional suppliers, with the US offers emerging as low as €1040/ton FD Italy. This was a reflection of swollen stocks at some traders. Suppliers currently sit on comfortable stocks as trading volumes have been lighter for the past couple of months due to the ongoing price rally and economic headwinds.

Prices saw decreases of up to €80/ton in Italy, while West European markets saw drops of around €40-50/ton. Accordingly, spot prices in Italy were assessed at €1100-1180/ton for LDPE film, €1080-1180/ton for LLDPE C4 film and HDPE b/m and at €1100-1200/ton for HDPE film, all on FD, 60 days deferred payment basis. In West Europe, assessments stood at €1120-1220/ton for LDPE film, €1100-1200/ton for LLDPE C4 film and HDPE b/m and at €1140-1240/ton for HDPE film with the same terms.

PE sellers were more willing to sell to get rid of their stocks ahead of December that calls for a renewed softer trend amid the shortness of the month and Christmas holiday. It would not be wrong to say that further downward revisions may be seen in the distribution channel in case of intensified sales pressure.

December awaited mostly softer

Participants expect to see €40-50/ton drops in the next ethylene settlement, while PE prices will follow suit with no glimmers of hope for an improvement in market fundamentals.

The December outlook remains pressured by high stock levels, weak demand and lower costs. Year-end destocking activities and buyers’ leave during year-end holidays will curtail demand to an important extent.

On the other side of the coin, players in West Europe suggested that PE markets may move sideways next month. They attribute this expectation to the firmer spot ethylene markets putting producer margins under pressure and the fact that December will be a short month with limited trading activity. Hence, producers may decide to avoid further price cuts when there will be no buyers around.

Cautious purchasing activity to permeate PE markets

Despite additional price revisions, purchasing activities remained tied to the basic needs this month, with buyers blaming patchy demand for their end products. Without fundamental demand support, other bullish factors are not usually strong enough to turn the tide, but they do trigger upward fluctuations for a short period of time.

Converters feel no urge to stock up material amid murky demand outlook in downstream sectors, while they also find a swift reversal unlikely for the near-term due to the abovementioned factors. Some of them are still covered as their inventories can last longer than usual due to reduced consumption levels, as a side note.