Feedstock prices expected to rise in June

June outlook

Crude oil prices continued to climb throughout May mainly as a result of geo-political tensions in the Middle East. For June, feedstock contract price settlements are expected to follow suit. European standard thermoplastic prices are also likely to rise on the back of higher costs. However, L/LDPE producers will have to get to grips with the excess supply situation. Otherwise, most polymer classes should benefit from an expected upturn in seasonal demand.

L/LDPE

While ethylene remains long, the market has edged towards better balance, especially since there was a spate of product exported from Europe in April. For May, the ethylene contract price edged €20/tonne higher due largely to a rise in naphtha costs and rumoured cutbacks in cracker output.

L/LDPE producers expected to recoup the rise in feedstock costs by raising prices, but surplus supply and patchy demand soon put paid to these plans. In some cases, converters even managed to achieve small price rebates, €10/tonne for LDPE and €5/tonne for LLDPE. Where prices were already on the low side notations were unchanged from April levels.

There is plenty of material available and traders were known to be offering product at good prices. Demand was quiet mainly as a result of the various public holidays during May.

HDPE

While ethylene remains long, the market has edged towards better balance, especially since there was a spate of product exported from Europe in April. For May, the ethylene contract price edged €20/tonne higher due largely to a rise in naphtha costs and rumoured cutbacks in cracker output.

HDPE producers were more hopeful for margin improvement than were their L/LDPE counterparts in May.  Supply has tightened and demand was good. HDPE producers called for a price increase of between €30-40/tonne at the beginning of the month. While notations increased by slightly more than the rise in feedstock costs, they fell well short of their initial target.

While European production is returning to normal, material availability remains tight. There was also an upswing in seasonal demand, although public holidays restricted converters' output in May and buying activity.

PP

For May, the propylene contract price was fixed €25/tonne higher on account of rising naphtha costs, maintenance turnarounds at cracker plants and restrictions on cracker output. Furthermore, the increased share of ethane as a feedstock to European crackers has started to feed downstream, with polypropylene emerging as an overall tighter market than polyethylene.

PP producers' attempts to pass on the rise in feedstock costs initially met firm resistance from converters and failed to gain any momentum as the month progressed. Notations increased on average by €15/tonne, which was some way short of the increase in propylene costs.

There was a more than adequate material supply in May despite a number of maintenance turnarounds at polymer production plants. Demand was just a little below what would normally be expected during a month of numerous public holidays.

PS

The May styrene monomer reference price fell €40/tonne, which was less than expected after spot prices firmed towards end April. Following the cost settlement, PS producers announced a planned price reduction of €30/tonne. Overall, producers limited the price reduction to around €30/tonne. 

Some producers attempted to increase the premium for high-impact material (HIPS) following the rise in the cost of butadiene (up €60/tonne), but overall, it remained at around €90-100/tonne.

Expandable PS demand was much firmer than GPPS demand. While GPPS demand was better than it was during Q1, it fell below expectations in May. The public holidays in European countries played a part and created delivery problems. Furthermore, GPPS demand was weak as customers were still drawing down inventories they had accumulated at the end of last year and anticipated lower prices in June.

PVC

In May, PVC producers faced a proportionate rise of €10/tonne in their cost base after the ethylene contract price was fixed €20/tonne higher. Producers initially aimed for margin improvement but faced a battle with buyers to even pass on the higher feedstock cost. Overall, PVC base resin prices edged €5/tonne higher last month. Flexible compound prices moved by slightly more due to an increase in plasticiser prices.

The European PVC sector is better balanced than in recent months and the high prices are dampening demand. The plant maintenance season is drawing to an end and material availability has improved.

In May, there were signs of a slowdown in PVC demand after a good start to the year. Construction sector demand was considered most likely to be affected by the number of public holidays in May.

PET

In April, the European PET market moved swiftly from being broadly balanced to short. This was mainly due to declaration of force majeure at a large PTA plant in Belgium around Easter following maintenance work. In addition, a PTA plant in Poland called force majeure later in the month. Meanwhile, Asia imports remained rather scarce.

The supply shortage combined with higher demand as a result of warmer weather, led to a price surge with notations rising €40-50/tonne despite a steady cost base.

The upward price momentum continued into May despite a respite on the supply front. The Belgium PTA plant was understood to be back online mid-May, but it would be some time before the pipeline was fully replenished. Meanwhile, buyers were intent on keeping their raw material stocks full, with the bottle-making season in full swing.