Forwarding of costs for most materials / Only PVC and EVA somewhat higher / Demand remains subdued / Easing in feedstocks leads to price pressure in October
In September, European PE producers succeeded in passing on their increased ethylene costs on a broad front. The feedstock had gone up between the end of August and early September by EUR 50/t. Attempts by many producers to also win a margin improvement, in contrast, largely failed, primarily due to a well-balanced market situation. Customers responded to the ongoing production cutbacks by holding back on purchasing activities.
The C3 contract, which lies at the root of all polypropylene grades, rose by EUR 60/t in September 2013 and settled at EUR 1,150/t. As a result, suppliers asked for EUR 80/t more for standard PP material, while the hikes for PP compounds extended up to EUR 100/t. As buyers were reluctant to buy high-priced homo and copolymer material, most increases were confined to the rise in the cost mix. Since film manufacturers, who are closely tied to the foodstuff sector, remained under pressure to buy, producers billed them for slightly more than the actual cost increase.
Converters were faced with demands from producers to lift prices by EUR 50/t in September. In the calculation, however, they found themselves staring at half of the ethylene price increase - or EUR 25/t - as well as a margin improvement of the same amount. The market leader raised its gross list price in September by only EUR 35/t; however, when it came to implementing the increase, the producer added the price adjustments it was unable to push through for August. Consequently, the PIE September ranges for S-PVC base material were higher than the costs. The upper end of the range was a little stronger with a EUR 35/t increase than the bottom end with a EUR 30/t hike, which was reflected in large order volumes.
September's styrene monomer (SM) contract rose by an unexpected EUR 85/t to EUR 1,542/t. PS and EPS producers responded by calling for hikes of up to EUR 110/t, while ABS supplier calls ended slightly lower, at up to EUR 100/t.
Processors managed to limit the hikes for PS and EPS to the SM cost increase, and - faced with the record high price level - curtailed their orders to the bare minimum. Weaker demand for ABS initially prompted suppliers to lower their demands to an average EUR 50/t, lower than the rise in ABS composite costs.
The upward price momentum for bulk PET purchases in August continued across Europe into September 2013, engulfing buyers of smaller volumes, too. In the end, suppliers were able to pocket the moderate rise in the PX and MEG cost mix. Although some producers managed to raise their profits slightly, a mostly sluggish market did not allow for much more than that.
For October, the rising ethylene contract reference price has turned back on itself due to the easing of tensions in Syria. It dropped by around EUR 35/t compared to August and now stands at EUR 1,225/t. With the underlying conditions seeing very little change, PE prices are under general pressure, which could lead to sellers passing on some or all of the cost reduction. The EVA specialities segment is the one possible exception.
All signs point to a reduction in the propylene chain in October. Indeed, the monthly contract was fixed at EUR 1,110/t, down EUR 40/t over September. Prices in the standard sector are also being pressured by ongoing poor demand amid sufficient availability. As a result, the rebates could even exceed the decline in the cost mix. The decline could prove more moderate for freely negotiated compounds, which enjoy the protective umbrella of indexed C3 orders.
The PVC supply situation is good. Excluding a German producer, which had to allocate volumes to customers following its annual maintenance cycle, there were no serious supply problems for base material. In contrast, the demand side of the equation had several converters being overly optimistic in terms of their estimated September volumes. As the outflow of finished products began to lose momentum during the month, market players also began cutting back on their S-PVC base material demands. In contrast, high volume segments such as piping, films and cables remained stable.
In the wake of the significant price turnaround for styrene - down EUR 92/t in October - the roller coaster is now heading down. Processors will insist that the cost reduction be passed on in full, as was the case in September. Producers, by contrast, want to secure a margin component and managed to do so where EPS is concerned. The widely anticipated rise in demand for the latter material could play into producer hands.
Prices are widely expected to fall in October, not least since the upstream uncertainties caused by the crisis in Syria have abated, but also in response to the ongoing price decline across China, which has spurred a flurry of imports. In addition, there is no sign of demand improving in the near future.