Producers resist buyer pressure for larger price discounts

In January, European standard thermoplastics continued their downward trend for the third month in a row as a result of lower feedstock costs and subdued demand. Ethylene, propylene and styrene drifted lower in line with crude oil and naphtha prices. At the start of the New Year, polymer demand was slow to take off and remained fairly sluggish throughout January. On the supply side, most markets were balanced. 

Polymer producers successfully resisted buyer calls to pass on in full the cost reduction and consequently improved their profit margins. L/LDPE contract prices fell €20-30/tonne compared with a reduction of €40/tonne in ethylene costs. HDPE was slightly firmer with settlements averaging €20-25/tonne lower. PP supply was on the short side and producers limited price rebates to €15-20/tonne against a €35/tonne fall in propylene costs. 

Polystyrene producers, supported by good demand, achieved a price rollover after the January styrene monomer reference price fell by only €15/tonne. PVC sellers restricted price rebates to €10/tonne, less than the proportionate €20/tonne impact on their cost base of the lower ethylene contract price. PET prices were either rolled over or fell slightly. 

Supply balanced

Material supply was well balanced in January with few shortages reported across all polymer classes. Most plants were operating as normal with some facilities resuming production after force majeure was lifted. 

• Indorama's PET plant in Rotterdam, Netherlands has been operating again since early January after force majeure was declared on its two PET lines at the end of November 2018. However, force majeure will only be lifted when Rotterdam is in full operation and inventories are restored to minimum operational levels.
• French producer Polychim declared force majeure on supplies of polypropylene 23 January. It was not made clear when force majeure would be lifted.
• Vestolit restarted its PVC and caustic soda plant at its production site in Marl 17 January and has resumed supply of all products to the full extent. The company declared force majeure on 12 November 2018 due to delivery problems of its ethylene suppliers.
• BASF lifted the force majeure on all plasticisers, which has been in effect since autumn 2018 after the supply of important raw materials such as toluene and naphtha to the Ludwigshafen plant had stabilised.
• Evonik lifted the force majeure on plasticisers that had been in place at its site in Marl, Germany in mid-December 2018.

A large fire broke out on 12 January at Karpatneftekhim's cracker in Kalush in western Ukraine and the company's olefins line is offline. A fire also broke out 10 January in one of the furnaces of Versalis' cracker at its site in Priolo in Sicily. The plant had to be shut down and it is not known how long the outage will last.

Demand subdued

Demand for polyolefins started slowly at the beginning of the New Year and remained sluggish throughout January. PVC demand was more solid while polystyrene demand was good. Some PS buyers were topping up their stocks as much as possible following the hefty price falls over recent months. 

In the UK, the polymer industry has started stockpiling vital components to mitigate currency and logistical risks associated with a no-deal Brexit scenario. 

February outlook

February olefin and styrene monomer contract prices had not been settled at the time of writing. Market expectations for the settlement of these contracts have varied from a rollover to a slight decrease to a small increase. 

L/LDPE

L/LDPE prices continued to track lower during January following a further reduction in ethylene costs, subdued demand and abundant supply. The ethylene contract price settled €40/tonne lower in January after it had fallen €110/tonne in the previous month. L/LDPE producers successfully resisted buyer calls for the full cost reduction to be passed through. Most contracts were settled €20-30/tonne lower. 

L/LDPE supply was more than adequate to meet demand with no new significant production restrictions reported. However, some higher quality grades of LLDPE were reported to be in shorter supply. Competitively-priced mLLDPE cargoes from the US emerged. Further shipments are expected to exert continued downward price pressure over coming months. 

As expected, polymer demand started slowly at the start of the New Year. For February, market participants expect a small rise in the ethylene contract price. 

HDPE

HDPE prices continued to fall during January following a further reduction in ethylene costs. The ethylene contract price settled €40/tonne lower in January after it had fallen €110/tonne in the previous month. HDPE producers successfully resisted buyer calls for the full cost reduction to be passed through. Most contracts were settled €20-25/tonne lower. 

HDPE remains the firmest PE grade due to a more balanced supply-demand position and the downward pressure on HDPE prices is more moderate than it is on LDPE. HDPE supply is relatively short compared with L/LDPE. However, the European HDPE market could also be hit by downward pressure from competitively-priced US imports over the coming months.

As expected, HDPE demand started slowly at the start of the New Year. For February, market participants expect a small rise in the ethylene contract price. 

PP

The January propylene reference also essentially followed the fall in the cost of oil and naphtha. The reduction of €35/tonne was once more somewhat short of the €40/tonne reduction in its sister product, ethylene. Most PP producers successfully resisted pressure from buyers to pass on the full cost reduction thus achieving further margin improvement. Contracts settled on average €15-20/tonne lower compared with December settlements. 

PP supply is somewhat shorter than PE as producers took steps in December to reduce their output in line with expected sluggish January demand. There were also several production issues in Europe. 

Demand was indeed slow in January as a result of pre-buying in November and December and slow end markets. 

Upcoming maintenance shutdowns at European crackers are expected during the first quarter. This will constrain monomer availability and support PP prices. 

PS

The January styrene monomer reference price fell by only €15/tonne compared with a combined reduction of €320/tonne during the final two months of last year. Polystyrene producers sought to hold their prices amid decreasing feedstock costs to recover their profit margins following margin erosion during 2018 while buyers called for lower prices. Sellers were mostly successful in retaining all of the cost reduction with contract price rollovers the most common outcome. 

Not all suppliers had sufficient quantities of material available and some reportedly sold out early in the month. There was an unscheduled outage of a large styrene production line in Terneuzen, The Netherlands.

PS demand was better than expected for the beginning of the New Year. Converters ordered as much as they could and topped up their stocks with prices being at such favourable levels. 

PVC

In January, PVC producers tried to restrict price rebates to no more than €10/tonne, which was less than the proportionate €20/tonne reduction in the ethylene contract price. Converters, on the other hand, called for more than the proportionate ethylene cost reduction. Overall, producers achieved some margin gain with contract prices falling on average by no more than €10-15/tonne. 

European PVC producers began the year with low stock levels, with some still recovering from plant outages. Nevertheless, most plants ran normally in January; including plants operated by Kem One and Vestolit's Marl, Germany site. Plasticisers are also more readily available following BASF lifting force majeure on plasticisers at Ludwigshafen, Germany. 

Demand returned to normal levels following a slow start to the year. Converters were refilling their inventories ahead of the spring seasonal upturn in construction sector demand. 

PET

In January, the paraxylene and monoethylene glycol contract prices, the two key feedstocks for PET production, both settled €35/tonne lower. PET producers successfully resisted converter calls for bottle-grade PET prices to fall in line with the reduction in raw material costs. Indeed, PET prices were either rolled over or saw a small price reduction. 

Seasonal demand was low as usual in January while PET supply was quite comfortable with most plants operating as normal. Indorama's Rotterdam PET plant restarted in January following force majeure being called in November and reached full production capacity by the end of the month. The company said that the impact from the loss of supply from the plant was minimal. 

Chinese PET imports into Europe should diminish from March following the Chinese New Year holiday which could reduce material availability.