Notations fall across the board / Only PE market trending tight and still relatively firm / Other grades see reductions close to cost declines / January to see additional downturn
PE: All their efforts notwithstanding, December 2014 was a
disappointing month for many European polyethylene buyers, as most of them had
to accept the fact that producers pocketed a considerable amount of the ethylene
cost reduction, and were thus able to improve their margins. Leading the pack
were the C4-based LLDPE grades, some of which were even subjected to a few price
hikes by mid-month. Although LDPE and HDPE injection moulding grades came under
more pressure, producers still managed to pocket part of the cost reduction.
Most customers thus fought in vain for a larger slice of the pie.
Headed into January, prices are likely to decline further, especially
following the EUR 130/t decline in the monthly C2 contract. The actual size of
the cuts will depend on the balance between supply and demand. It still remains
to be seen when price cuts will be low enough to stimulate long-term demand?
After all, at one point or another both buyers and the end markets will suspect
that prices have bottomed out.
PP: European PP producers were forced to give up a large
part of their EUR 60/t cost relief from the decline in the C3 contract but
nevertheless managed to hold on to some of it. Even though manufacturers had
curbed output, traders and inventory sell-offs were able to make up the
difference. For the compounds, the unavoidable rebates were limited in scope due
to stable additive prices and the still valid quarterly contracts.
The EUR 120/t decline in January's propylene contract is pointing the way for
additional rebates, giving producers room to flog off their volumes. In the end,
the balance of supply and demand will determine the size of the declines
offered. Since many traders sold off their stocks in November and December, the
final tally still remains unclear. The renewed decline in the C3 notation could
lead to substantial rebates for compounds when negotiations on annual,
semi-annual and quarterly contracts are held.
PVC: In December 2014 European PVC producers once again had
to concede defeat in their attempt at lifting their margins to a more acceptable
level. With the market well supplied, they were left with little choice but to
pass on the proportionate ethylene cost decline. Compounds producers even had to
concede more, since the price of olefin-based stabilisers, modifiers and
plasticisers also fell. Producers of the rather high-priced PVC pastes also
granted their customers the proportionate cost decline.
Amid the ongoing slide in upstream notations, PVC prices are expected to fall
significantly in January - even if it is still difficult to predict the full
extent. Producers, for their part, are starting the new year with a renewed
sense of purpose. Many told PIE they will no longer grant large concessions,
adding that they desperately need to improve their margins. In the end, however,
their success will depend on how demand develops.
PS: After December's SM contract was settled EUR 150/t
lower, notations for PS and EPS nosedived by a triple-digit margin. Lesser
declines for butadiene and ACN cushioned the fall for ABS. Rather than pass on
all their cost decline, producers of styrenic polymers pocketed some of it to
In January, most market players expect SM to continue to slide, heralding
massive declines for all styrenic polymers. The EUR 201/t fall in the benzene
contract is already pointing the way. It is therefore no surprise that
converters ordered only the bare minimum. Even that was less than in a usual
month, however. December has fewer production days, and converters usually want
to keep inventories low at balance sheet time.
The extent of the traditional reordering surge in the first half of January
will depend on price developments upstream. If notations deteriorate further,
converters will hold back on their orders. However, if starting materials begin
firming, processors will rush to reorder ahead of future price increases. This
could result in supply bottlenecks.
PET: European PET prices continued to slide in December
2014, as the decline in November's PX contract pulled notations down with it. As
is often the case at times of significant price declines, the resulting market
picture was quite murky. Whereas some converters already had secured rebates in
November, others only did so in December. On the whole, the declines averaged
about EUR 100/t over the course of the last two months of 2014. North American
and Asian PET notations also caved in. The downward trend was evident on the
European PET recyclate front, too, even if both virgin and regrind material
suppliers were able to raise their margins slightly, as they did not pass on the
entire cost decline.
The market is once again trending towards oversupply, as both new European
plants and imports are increasingly making themselves felt. In addition, the
upstream price declines led many buyers to exercise extreme restraint, as a
result of which producers' inventories continued to swell. The renewed decline
in December's PX contract appears to be pointing the way to additional erosion