Year end sees commodity resin prices plunge
2008 ended with the worst quarter in living memory for the standard thermoplastics market. Prices plunged by an unprecedented amount on collapsing feedstock costs and rapidly slowing demand as the financial crisis and economic downturn took their toll on polymer markets. Producers have responded by cutting back production and closing down plants across the board to drive down excess stock levels.
During December, the PE sector once again saw the biggest price reductions with L/LDPE notations tumbling by around €300/tonne compared with prices in late November. The downward spiral for PP and PS prices gathered pace and PVC also showed substantial discounting. There was some slight relief for PET sellers, however, with the rate of price decline moderating during the final month of 2008.
Demand picked up a little in some sectors during December but was still well below what would normally be expected. This may be explained by the short production month rather than any real restocking on the part of converters. In any event, it seems the bottom of the market - in both pricing and demand terms - may not yet have been reached.
L/LDPE prices almost halved over final quarter
Late November settlements saw further massive price reductions for L/LDPE and the downward side continued into early December trading, with notations falling €90-100/tonne. Price slippage was not quite as pronounced for LLDPE, with low-density grades quite unusually costing slightly more in December than their LDPE counterpart. Polymer sales remained extremely weak in December as the economic downturn cut end user demand and severely reduced converter needs for additional material. Many converters planned to close early in December for an extended holiday period, given the downturn in demand and the very limited order intake that was expected after mid-month. Material availability remains long as the polymer production cutbacks are taking time to feed through into industry stock levels. The Q1 ethylene contract price is expected to be settled at a much lower level, however, the immediate price outlook is uncertain.
HDPE continues on its downward price path
The downward slide in HDPE prices gathered pace during the last week of November, although price reductions started to moderate over the first two weeks of December. Film and blow moulding grades saw the biggest falls, with notations down by €270/tonne and €240/tonne respectively since late November. There is, however, an enormous variation in current prices between different customers and geographic locations across Europe. Long supply still overhung the market at the close of the year despite production cutbacks. However, arbitrage opportunities have been closed off as Asian PE prices started to move higher. Polymer demand was also a little better than in the previous two months. Suppliers will be hoping for a price rollover this month as they have made massive stock losses over the final three months of last year.
PP plunges as demand remains very weak
PP prices dropped further in late November trading and the fall gathered pace during the first two weeks of December. Demand remained extremely weak, while measures by producers to reduce polymer production have not yet fed through into lower inventories. Producers were said to be offering sizeable price concessions to reduce industry stocks. However, the volume of imports arriving from the Middle East and Asia declined following a rise in Asian PP prices in December. Polymer grade propylene is extremely long, which has prompted a growing expectation among market participants that the C2 contract price for Q1 will plummet. If these circumstances materialise, it is possible that PP notations will decline further in January.
PS supply shortens as production cutbacks impact
PS notations plummeted again in December after a drop in the average SM contract price of €50/tonne. Over the final two months of the year PS prices fell by around €400/tonne.
PS demand recovered slightly in December after a disastrous previous two months. This may have been due to converter stock building, encouraged by prices which now stand at much lower levels. Resin production cutbacks appear to have tightened PS supply, with some producers reporting they had difficulty meeting orders during December. With benzene prices collapsing and further downward pressure on SM likely in January, it is difficult to see prices bottoming out this month unless demand recovers sharply.
PVC prices slide further as demand evaporates
PVC prices continued to slide during December despite a brave attempt by some sellers to call for a rollover. Notations dropped by around €80-90/tonne during the first two weeks of the month, with a distinct possibility that prices could slip even further prior to the holiday period as sellers seek to offload surplus stocks. PVC demand virtually dried up in December due to severe de-stocking by converters. Key end use sectors for PVC, such as the automotive industry and construction, are being badly hit by the downturn in the European economy. Producers are reducing plant operating rates and temporarily shutting down some PVC facilities in order to reduce stocks into line with lower levels of demand. SolVin has two plants down, including the Martorell plant in Spain. LVM has closed down some of its lines at Mazingarbe in France. Some PVC sellers have indicated they will ask for a price rollover this month.
PET prices may be close to bottoming
In December, the downturn in bottle-grade PET prices appeared to be slowing down. Following a triple-digit price decline in November, PET resin prices fell by a relatively modest €50-60/tonne last month. The price reduction was less than the impact on PET production costs of feedstock cost development, which gave producers much needed margin improvement. The PET resin sector has been dogged by late and contested settlements in the PX contract price in recent months. Last month there were reports that Invista had agreed a PX contract at €60/tonne lower than the working number being used as a basis for negotiating PET prices. This apparently prompted buyers to return to their suppliers and demand a review of last month's deals. The measures taken by PET producers to reduce output appeared to be bearing fruit with industry stock levels starting to shorten. Meanwhile, demand remained extremely weak in December with important market sectors like bottled water and juices going into winter hibernation. Some converters are believed to be operating their production lines at rates of around 50% of normal levels.