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January 20, 2016 06:00 AM

Producers widen margins as supply tightens

David Platt
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    The mild winter weather is supporting continued activity in the building and construction sector

    Following their success in November, European standard thermoplastic producers continued to enjoy margin boosting price rises in December. Price levels for PE, PP and PS increased at a higher rate than feedstock costs. Producers adopted a hard line during lengthy price negotiations with buyers, insisting on price hikes well above the change in the cost of monomer. They justified their price policy stance on growing market tightness and the fine balance between supply and demand.

    The December ethylene contract price increased €22.5/tonne following a rollover in November. L/LDPE prices increased €40-50/tonne, well ahead of the monomer rise. HDPE prices increased by €35-50/tonne, also well above the rise in the cost of ethylene.

    Polypropylene prices were on an upward trend after dipping in November. While the December propylene contract price remained unchanged, PP prices increased by €15-30/tonne.

    Polystyrene producers were also able to raise notations above the rise in the styrene monomer (SM) contract price. General-purpose PS prices increased €45/tonne compared with a €35/tonne rise in SM costs.

    PVC sellers faced a tough battle to pass on the proportionate €10/tonne rise in their cost base and had to settle for a price rollover.

    PET prices barely moved in December with feedstock costs remaining stable.

    Demand was surprisingly good across many segments during the first two weeks of December, but momentum, not surprisingly, stalled in the run up to the Christmas holidays. Many converters switched off their lines for maintenance works between Christmas and New Year.

    The unusually mild winter weather is supporting continued activity in the building and construction sector, and the packaging sector also enjoyed lively demand.

    The moderate price levels encouraged order activity with many converters engaging in stock-building – although the supply bottlenecks have left many disappointed.

    Material availability for PE, PP, PVC and PS markets tightened because of output restrictions, plant outages and a lack of imported material. The PET sector was an exception, where despite output restrictions and plant outages, a steady flow of cheaper Asian material meant continued slight oversupply.

    Several PE, PP and PS producers experienced a shortfall in their ability to supply and had to place customers on allocations.

    A summary of the latest supply-related market developments is presented below:

    • Lotte Chemical was conducting maintenance works at one of its two lines at Teesside in the UK, which is reducing supply in the UK. Maintenance was expected to continue until mid-December.

    • BASF's Antwerp MEG plant in Belgium and Ineos' Dormagen MEG plant in Germany recently returned from maintenance and force majeure, respectively.

    • Shell commenced with the restart of at least parts of its cracker in Wesseling, Germany, mid-November. The facility had to be taken off stream on 10 May following a fire.

    • Ineos confirmed mid-November that its nearly six-month force majeure for a number of HDPE grades produced at Lavera and Sarralbe (both in France) in addition to Rosignano (Italy) had been lifted.

    • Following a small compressor fire in the late evening of 11 November, the cracker operated by Shell at Moerdijk, The Netherlands had to be taken off line. The cracker reportedly restarted operations in late November.

    January feedstock cost contract prices settled at a lower level and polymer prices could follow. While producers will aim to pocket some of the cost relief and supply in most markets will remain tight, demand is likely to be subdued at the start of the New Year.

    Read the full report here.

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