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Will Saudi cutbacks cause jitters in Europe’s PE market?

by Manolya Tufan - mtufan@chemorbis.com
by Esra Ersöz - eersoz@chemorbis.com
  • 23/09/2019 (09:24)
Supply concerns in the aftermath of attacks on Saudi oil rattled global PE markets while they are yet to create much angst among European PE players. Still, sellers voiced firmer intentions in case of prolonged disruptions from the region, while buyers mostly remained skeptical about the feasibility of price hikes.

Crude cancels half of Monday’s spike, but still up 7% from a week before

Brent crude oil futures ended last week over $64/barrel while WTI NYMEX crude oil was closed slightly above $58/barrel on Friday. Crude futures lost around 7% and 7.5% respectively in the following days after it spiked by more than 15% on synchronized drone attacks on Saudi Aramco’s facilities on Monday.

Although several Saudi producers initially announced feedstock disruptions at varying rates, they reported improving availability later in the week in line with restoring oil supplies.

Sellers hold sales until further notice

Suppliers decided to suspend their offers until further clarity. A player commented, “Saudi disruptions have caused uncertainty rather than concerns up until now.”

No actual offers were reported while traders elected to take the pulse of the market with their sell ideas for October. The extent of the production loss from Saudi suppliers is yet to be known, which explains sellers’ waiting stance.

A distributor commented, “We aim to approach the market with hike attempts in October, although demand-side remains as a question mark.”

Despite poor market dynamics, PE sellers already had intentions to pull prices from multi-year low levels as most grades stand at par or below the €1000/ton threshold.

October draws a slightly firmer picture

Further decreases are off the table regardless of the weakness of demand. Both buyers and sellers concur that prices may stabilize at the very least if a rebound can not materialize, considering that spot LDPE and LLDPE prices have already hit a decade-low .

Considering a possible delay in PE shipments from Saudi Arabia in October, sellers are arguing that this will support prices next month. The European PE market is already facing pressure from growing imports from the US at competitive prices. If Saudi Arabia remains out of the picture for October shipments, it will definitely change the market dynamics.

Buyers, however, remained skeptical about an upturn owing to the weak market dynamics. No major supply disruptions are likely to be felt so long as demand remains subdued across the board. Replenishing activities won’t go beyond basic needs amid lengthy supplies, a buyer argued.

Saudi Arabia 2nd largest supplier for LLDPE, 4th for HDPE in EU28

Europe is not self-sufficient in PE, structurally depending on imports for LLDPE and HDPE. As statistics affirm from 2016 to 2019, Saudi Arabia is the major import PE supplier of Europe. It also stands as the second largest supplier on country basis in the LLDPE market, owning a market share of 15% among overall suppliers including EU28 members. In the case of HDPE, imports from Saudi Arabia follow Belgium, Germany and the Netherlands, possessing a market share of around 10%.

How will monomer discussions be affected?

Players are evaluating possible impacts of the disrupted Saudi production. They think that recent developments might have an impact on the upstream markets, although the volatility in energy markets has failed to provide a visible support on ethylene so far.

According to the weekly average prices on ChemOrbis Price Wizard, spot ethylene on FD NWE basis rose by €30/ton since early September.

A major market participant noted, “We were not quite optimistic about the next ethylene contracts. However, our expectations turned stable to firmer following the recent developments.”
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