Price reductions slightly greater than price relief / Producers‘ margins still well-padded / Market trending long / Downslide will gather speed in September

PE: PE producers did everything they possibly could in
August to avoid passing on all of the EUR 70/t reduction in the cost of
ethylene. Towards the end of the month, however, they had to yield to the
realities of falling oil and petrochemical prices and the mounting influx of
imports by granting concessions that were generally a little above the cost
reduction. Only with the blow moulding and higher-grade injection moulding types
of HDPE, where availability barely improved through imports, were the rises
confined to the monomer reduction. Nevertheless, most producers generally
managed to hang on to their present record margins.

This did not go unnoticed among converters, which means that the battle for a
larger share of the cake will continue in September. It goes without saying that
producers will do their utmost to hold the price cuts to this month's ethylene
reduction of EUR 90/t, although they also know that buyers will want more. For
the time being, positions are being sounded out, fears of shortages evoked, and
the requirements for gaining bonuses reiterated. Once again, genuine shortages
are only likely with certain HD grades, where the price cuts will probably
remain on a par with the cost reduction. In the majority of cases, however, it
looks as though September will see suppliers being forced to grant concessions
that are in excess of the cost cuts. Let the poker game begin.

PP: At the beginning of August 2015, PP producers were still
doggedly trying to hold off on passing the monomer's reduction along the line.
From the start, however, it seemed clear that this strategy would have to be
abandoned at some point. The end-of-month tally showed rebates exceeding the
price relief. At the higher end, concessions were greatest. This did little to
trim the fat from the margin padding acquired in spring, however. For PP
compounds the rebates came automatically through indexed contracts.
Non-integrated players using standard PP as a base material could at least
leverage the price decline to win back some of their own margin padding but not
enough to sustain their business in the long term.

In September, the downhill momentum for PP notations will gather speed, as
the monthly propylene reference contract dropped back by EUR 110/t. The margin
padding of back-integrated producers is still so thick that they will continue
to turn out as much polymer as possible. As European PP notations are currently
the world's highest, they will attract imports like a magnet and lengthen the
market considerably. With this as a given, the concessions granted buyers of
standard grades could exceed producers' cost relief. In indexed contracts for
compounders, notations will move down accordingly.

PVC: The market calmed down somewhat in August, as expected,
even though the negotiations about the proposed decline in PVC notations proved
to be quite tough and time-consuming. Producers found it rather difficult to
compromise on their margin goals, while processors had to give up their earlier
hopes for more encompassing cuts. In the end, the two parties agreed on a
compromise solution, with base grades reflecting the overall cost decline. The
same was true for E-PVC, although here players were quicker at arriving at a
compromise. Rigid PVC blends prices reflected the fall in titanium dioxide
notations, while the decline in flexible blends was limited to the fall in
matrix material costs.

Notations are expected to continue their decline in September, especially
following the EUR 90/t fall in the monthly ethylene contract. Nevertheless,
buyers' hopes for declines exceeding the fall in costs will likely be quashed as
demand starts to pick up again. In this scenario, notations in September could
once again follow the proportionate feedstock price decline.

Styrenics: In August 2015, styrenics could not buck the
downward trend initiated by the EUR 25/t decline in the SM reference contract.
Not only the ongoing summer holiday season curbed demand. After the first third
of the month, hints of a further deterioration of SM notations left converters
with even less inclination to buy. Especially ABS, but also PS prices, slumped
under the influence of increasing competition from imports that were redirected
to Europe due to weaker prices in east Asia. All these factors combined to
broadly drive ABS and PS prices farther downward than producers' costs,
especially in the second half of the month.

For September, further price reductions for styrenics are to be expected
following the renewed decline in the SM reference contract, this time by EUR
100/t. The reduction in ABS and PS supply in particular, due to maintenance
shutdowns, will offer some price support. Still, producers will not be able to
avoid passing on cost reductions to their customers, either in full or in
part.

PET: As was to be expected, European PET prices continued
their marked downslide in August 2015. In addition to the downward pull exerted
by the fall in Asian notations, which had already began in July, the global
decline in oil and petrochemical notations also played a part. There were plenty
of imports to go around, and the price downslide led many buyers to hold back on
their orders - as a result of which the market is once again clearly trending
towards a surplus. The cost mix for PET fell by about EUR 90/t and polymer
prices dropped by roughly the same amount.

To make matters worse, it is widely expected that European PET prices will
continue to crumble in September. Severe insecurity in Asia coupled with a
renewed hopelessly oversupplied European market and a rather reserved attitude
among buyers are expected to bring notations down further in September.

More information on PIE Polymer Price services ...