Europe LDPE spot prices at lowest point since 2012, outlook unclear

LONDON (ICIS)–Low density polyethylene (LDPE) spot prices are trading at their lowest point since 2012, and even lower – to the level of 2010, according to some buyers.

– LDPE spot down to 2012 levels

– Demand slow

– Crude up, naphtha little change in euro terms

Some LDPE prices have broken the €1,000/tonne FD (free delivered) NWE (northwest Europe) barrier this week, they said, although not all grades were available at this level.

Some offers were as high as €1,100/tonne, but it was not clear how much business was being done at either end of the range talked.

Demand has started off the year poorly, and this, coupled with the drop of €40/tonne in the January ethylene contract, led to an immediate expectation of lower prices.

2012 was a year that saw very poor netbacks for European polyethylene (PE) producers and some production was closed permanently. Many of these closures were on high density polyethylene (HDPE), where profits were worst. HDPE is now a net imported product into Europe.

Company	PE grade	Location	Capacity ‘000 tonnes	Status	Date
Dow	HDPE*	Tessenderlo, Belgium	190	Closed	End 2012
Versalis	LLDPE**	Priolo, Italy	150	Closed	Sep 2013
LBI	HDPE	Wesseling, Germany	100	Closed	Q3 2013
Eni	LDPE***	Gela, Italy	150	Closed	End 2013
Borealis	HDPE	Burghausen, Germany	175	Closed	End 2014
Total	HDPE	Antwerp, Belgium	70	Closed	End 2014
Repsol	HDPE	Puertollano, Spain	90	Closed	Q2 2015

*high density polyethylene, **linear low density polyethylene, ***low density polyethylene

Since then, naphtha is more competitive, but ethane-based production still provides better netbacks.

Lower naphtha has meant better margins for cracker operators, but the spread between ethylene and PE is very low at present, even with the most recent €150/tonne drop in the ethylene contract in December and January combined.

December PE producers managed to claw back some spread at freely negotiated accounts, as the ethylene contract fell by €110/tonne, and PE prices lost around €80/tonne.

It was not clear whether sellers could manage a similar coup in January, as the month is a short one.

February remains a conundrum.

Crude prices have soared by around $10/bbl in days, and these higher costs could have an impact on ethylene. Naphtha is the key to ethylene contract negotiations, however, and naphtha is still trading below its point when the January ethylene contract settled, in spite of the sharp rise in crude.

As well as upstream prices to consider, imports are also expected to grow in volume, as new PE capacity comes on stream in North America.

January monthly PE contracts are not under full discussion in many cases. A drop of €20/tonne is already clear, but buyers consider that this is just not enough.

“We’ve been offered minus 20 [€20/tonne],” said one. “We will not accept that.”

PE is used in packaging, the manufacture of household goods, and also in the agricultural sector.

Focus article by Linda Naylor.

Picture source: Design Pics Inc/REX/Shutterstock