European polyolefin buyers enjoyed long awaited relief in June as feedstock costs and prices tumbled from the lofty heights of recent months.
The L/LDPE price bubble has truly burst with notations tumbling in June. Producers initially hoped to limit the downward price adjustment in line with the €120/tonne drop in the June ethylene contract price but were swiftly forced to adjust their plans as a result of over-supply and weak demand. Prices fell during the month by around €150/tonne against May closing levels.
Producer inventories were full to overflowing and there were plenty of special offers available. Production cutbacks can be expected over the next few months.
Demand was extremely slow with converters unwilling to commit to buying more than the minimum they needed for their current production as feedstock costs and polymer prices were widely expected to fall further in July. The slowing economies, particularly in southern Europe, also took their toll on end user demand.
HDPE prices plummeted in June due to wide material availability, growing imports and subdued sales. Faced with such pressure, producers were unable to hold the price decline to around the €120/tonne reduction in C2 costs and notations crumbled by €150/tonne on average against May.
There was plenty of material available both through European producers and imported spot supplies through traders. European sellers had built up excessive inventory levels in recent months as a result of the slack demand and were keen to offload stock in advance of further price reductions. Some HDPE producers had already begun to trim back output.
Order intake was weak as converters held back from buying additional volumes with polyethylene prices expected to fall further in July. The economic malaise affecting much of Europe also had a restraining influence on demand.
PP producers by and large succeeded in restricting price rebates in June to the €125/tonne reduction in monomer costs, although there were reports that some deals settled at even lower prices.
PP remains over-supplied but is by no means quite so long as their counterparts in the PE sector. While most plants are operating normally producers are likely to curtail production rates even more over the summer months should prices fall any further.
Sabic was the only PP producer with plant outages with its PP lines at Gelsenkirchen, Germany and Geleen, The Netherlands shut for maintenance.
As in other polymer classes, demand was subdued in June as converters bought only the minimum requirement to meet their immediate production needs. Demand is likely to pick up when buyers are convinced that prices have reached a plateau.
PS sellers had to quickly abandon their plans for modest price increases in June after the styrene monomer contract price unexpectedly settled on a rollover basis versus May. Benzene prices, rather surprisingly given the trend in other petrochemicals, continued to rise. The rise in benzene coupled with the plunge in ethylene costs caused the stabilising effect on styrene monomer.
GPPS prices softened by €10-15/tonne during the course of June while HIPS fell a little more given a sharp fall in the cost of butadiene.
Demand was extremely quiet in June as converters bided their time and waited for an anticipated downward correction to benzene.
While there was more than sufficient material available industry stock levels are not as long as in the polyolefin sector. Producers had already begun to make production cutbacks in recent months.
PVC prices fell on average by €40/tonne in early June but some sellers were prepared to make even bigger concessions offering rebates of up to €60/tonne to encourage buyers. By month's end price rebates were closer to €60/tonne. The reduction of €120/tonne in ethylene, which accounts for half of the PVC production cost base, meant that PVC costs fell by around €60/tonne in June.
Buyers were however in rush to place additional orders, preferring instead to wait a further reductions in costs, and hence PVC prices. PVC demand is also being restrained by the slowdown in European economies and particularly lower than expected sales to the building industry in eastern Europe.
Material availability was verging on the long side despite the efforts made by producers to curb production and avoid excess stock-building over recent months.
European PET resin producers managed a small margin improvement in June by holding the price decline to just below the reduction in raw material costs. PET feedstock costs continued to tumble because lower European demand has subdued the Chinese fibre market.
The June paraxylene contract price fell by €120/tonne while MEG was down by €54/tonne. The combined impact on the PET cost base of these feedstock cost developments was a reduction of around €90/tonne. European PET resin prices only fell by €60-70/tonne, mainly due to seasonal demand. However, seasonal sales are not as good as would normally be expected due to the economic climate. Imports, on the other hand, are down due to the weakness of the Euro against the US dollar.
Most production plants are operating normally although several facilities are running at reduced rates.