02/12/2015

PIE - Polymerprice Reports

Standard Thermoplastics January 2015

Cost declines dictate the extent of polymer price falls / Some producers manage to improve their nominal margins / Downtrend in February / Turnaround possible in mid-month


PE: Although polyethylene producers began the new year by
holding on to most of the cost reductions, by mid-month this approach was no
longer tenable. Eager to get their share of the EUR 130/t fall in the monthly
ethylene contract, converters insisted on price reductions. Most of them,
however, failed to secure the full cost decline, and producers thus once again
managed to add a few euros to their margins. This piecemeal approach has allowed
PE manufacturers to exploit the steep fall in feedstock costs by improving their
margins from anywhere in the range of EUR 15-105/t since October last year.
Following the EUR 70/t fall in the C2 contract, prices are likely to decline
once again in February. In the meantime, however, oil and naphtha appear to be
bottoming out, while consumer optimism is rising. Both developments point to an
imminent increase in purchasing activity. As a result, while producers may still
grant substantial declines in early February, the size of the concessions will
decrease as the month progresses. In fact, prices might just turn around in the
second month of 2015.

PP: European producers of standard PP had to pass on all of
their cost relief for propylene in January, with only a few able to achieve
marginal gains at the fringes of the PIE range. Expecting further price
deterioration in February, converters were reluctant to buy, as a result of
which there was plenty of material in the market. The long market was also the
result of lower costs, which encouraged producers to run their plants flat out.
In transactions for PP compounds, freely negotiated deals paid tribute to the
price declines in C3-indexed contracts, moving downward by EUR 80-90/t. Demand
was encouragingly strong, market players said, despite the fact that buyers
speculating on further deterioration were reluctant to buy. On the heels of
January's decline in both oil and naptha notations, the propylene contract fell
further in February, giving up EUR 80/t. In the meantime, upstream prices have
firmed noticeably. It increasingly looks like oil is bottoming at around USD
40-50/t per barrel. This will certainly provide an impetus to buy, especially as
end consumers with wallets profiting from cheap prices at the pump will surely
be in a buying mood come spring. Depending on the strength of sales volumes,
rebates will be somewhat less generous going forward.

PVC: European PVC producers once again had to pass on the
proportionate 50% ethylene decline to their customers. The price of ready-to-use
compounds and dry blends fell by a similar extent, since additive costs also
followed the general downward trend. There were a rising number of reports that
producers' inventories are starting to burst - and not just because it is the
off-season. For several weeks already, many buyers have been holding back on
their purchases in the hopes of additional price declines. Nevertheless, most
players expect volume sales to improve in February. While prices will likely
continue to decline, the fall is expected to be comparatively moderate. There
are rising signs that the decline in the oil chains is bottoming out, which,
coupled with pre-season stock-up efforts ahead of what promises to be a good
consumer and construction season in Europe, could break the downstream´s
reluctance to buy.

PS: The plunge of EUR 290/t in January's SM reference
contract pulled prices for styrenic polymers sharply downward. The significant
cost correction allowed producers scope for margin improvements, which of course
varied from product to product. Converters were able to obtain the greatest
price relief for EPS insulation material, as the building industry was still in
hibernation. Rebates granted to buyers of EPS packaging material grades were
smaller. PS and ABS buyers were in somewhat of a bind as supply tightened on the
back of maintenance turnarounds or plant outages for the former and slackening
imports for the latter. At the beginning of the month, ordering was lively as
many converters had emptied inventories at the end of the year. From mid-month,
however, demand began to ebb as sinking SM spot notations signalled that the
contract price was likely to decline again in February. Due to the euro's
weakness, the fall in the SM price, at EUR 55/t, was smaller than expected.
Nevertheless, the market could see further price reductions, even if brisk
demand might again allow producers to hang on to some of their price
advantage.

PET: European PET notations continued to fall in January
2015, even if suppliers were able to keep their concessions at a manageable
level - especially considering the triple-digit decline in the notation of key
feedstock PX as well as the marked decrease in MEG. Notations for the small- and
medium-sized orders reflected in the PIE range thus largely remained above the
level of EUR 1,000/t. The same cannot be said of bulk volumes, the cost of which
has fallen to the level of higher-grade recyclate, and at times can be purchased
for less than the secondary material. As a result, recyclers are under rising
pressure to consolidate. The developments of the last few months have seen a few
secondary market players fall by the wayside already. Although demand rose
slightly as the new year got underway, as several processors strove to top up
their inventories, most players held back on their ordering in anticipation of
additional declines. This situation could change in February. For one, there are
rising signs that the oil and aromatics chains are bottoming out. In addition,
from mid-month onwards, PX spot notations have started to firm. And finally, the
low oil price is likely to have a positive impact on European consumer
behaviour, too. This means processors will no longer have any reason to delay
their orders. All this notwithstanding, it looks like PET prices will once again
fall in February, albeit only moderately. After that, however, indications are
that notations will have bottomed out.

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