The European polyethylene (PE) market was calm this week as the summer lull continued to weigh on trading activity. Many market participants were away from their desks, with seasonal holiday closures at many converters' plants also reducing prompt restocking needs – with pockets of prebuying in July also covering some buyers' requirements for August and early September. Many buyers remain in a wait-and-see mode awaiting clearer direction for September pricing.
Seasonal restocking activity is expected to pick up in September, and has kept many sellers optimistic of targeting increases in PE prices in the coming weeks. Some sellers have reported pre-buying demand for September from converters looking to hedge against any increases in short term prices. But the demand picture is expected to become clearer in the coming weeks on whether any meaningful support to fundamentals is seen, which could help PE producers widen margins.
Upstream crude prices firmed this week after the memorandum of understanding between the US and Iran lapsed, and with vessel traffic through the strait of Hormuz dropping to a record low. Naphtha prompt's price also rose to €675/t on 20 August, from €650/t on 14 August. Naphtha has so far averaged €11/t lower in August – compared with the July average of €656/t – but could moderate to just a €2/t decrease in the average by the end of the month. This backdrop will set the stage for next week's negotiations of feedstock ethylene's September monthly contract price (MCP).
Conditions remain challenging in many downstream value chains, which has kept converters mostly err on the side of caution. Import arbitrages remain workable from the US for HDPE and LLDPE grades, and have continued to set the spot price floor in the European market. And with spot prices remaining at wide gaps to contract prices, some buyers held the view of limited upside risk on PE pricing and keeping procurement confined to a need-to basis. Some reports were also heard of competitive offers from the Middle East but logistical bottlenecks persist on shipping from Red Sea ports – particularly with vessel congestion at the port of Jeddah. Converters are also mindful of inventory risks further ahead in the fourth quarter in case of any bearish developments in pricing.
There have been some differences between the PE grades, however, with some strengthening seen in LDPE fundamentals. A producer in the Netherlands was heard to have declared force majeure on LDPE supplies earlier in August, which has resulted in tighter supplies on the part of other sellers. Some producers reported being sold out on LDPE volumes for delivery August. And with LDPE supply dynamics being more domestic in the European market, this could continue to lend support to LDPE prices going into September.
Low water levels in the Rhine and Danube rivers have continued to affect operating rates at many crackers and polymer plants inland in Europe. Outages persist at some PE plants in central-eastern Europe, and force majeure on supplies remain in place from some plants in that region. This has contributed in keeping PE prices in central-eastern Europe at a premium to northwest Europe and the Mediterranean regions.
Against the backdrop of ethylene's August MCP settling at a €42.50/t increase from the July MCP, some PE producers sought as much as €100/t increases in their freely negotiated PE contract prices. Buyers pushed back against any increases in their freely negotiated PE contract prices, arguing these remain disconnected to spot prices and the global market. Settlements were reported in wide ranges, but were concluded at price rollovers in many cases – except for LDPE grades. Some producers reported settlements at increases matching the increase in ethylene's August MCP, while steeper increases of up to €100/t were also reported for LDPE grades. Some buyers also reported securing €20-30/t decreases in their freely negotiated HDPE and LLDPE contract prices, in instances where underlying prices were relatively high. Negotiations are ongoing in some cases for LDPE and LLDPE contracts.
For all HDPE grades, the Argus deltas for August were assessed at rollovers.
For LDPE and LLDPE butene, the Argus deltas for August will be assessed next week.
Spot prices of all HDPE grades and of LLDPE butene were assessed stable this week. It remains to be seen if sellers' targets of securing higher prices for September-delivery volumes come to fruition in the coming weeks.
The spot price of LDPE was assessed €50/t higher at €1,200-1,300/t ddp northwest Europe.
