Polyolefin cost increases implemented in product prices / PVC and

As the ethylene contract price for December cancelled out the decline of the
previous month, producers responded immediately by adding EUR 30/t to their PE
prices. They were, however, unable to push through their original calls for an
extra EUR 70/t, which they desperately wanted to improve margins. Even the
aggressive stance adopted by some producers did not help, because imports or
spot market offers were always an alternative for buyers. Generally speaking,
supply was sufficient to meet the gradually declining demand at the end of the
year.

In December 2013, European producers of standard PP for the most part were
able to pass on at least their higher production costs. Additional gains were
possible only where buyers were paying extremely low prices. At mid-month,
however, the supply side had managed to push through a minimal surcharge for
top-up orders. In freely negotiated transactions, PP compounds moved slightly
higher on the back of indexed contracts reacting to the C3 contract increase.

Supply of standard material tightened continuously throughout the month.
Even though demand dwindled as usual in December, there were delivery delays,
and some buyers had to be put on allocation for orders that were within
forecasts but not signalled in advance. The window for speculative pre-buying
was firmly shut.

As a result of a balanced market situation in a month characterised by weak
order volumes, European PVC producers in December managed to pass on part of the
moderate price increase for S-PVC base material. The cost of unplasticised dry
blends and compounds rose only by the respective share of S-PVC base material
due to stable additive prices. Though the cost of plasticisers took a slight
decline, it was the increase in matrix material costs which impacted PVC (P)
compound prices. As the cost of plasticisers fell slightly, price trends for PVC
(P) compounds cancelled each other out, leading prices to roll over. The entire
cost increase was passed on for E-PVC pastes.

Plans by some European PS and ABS producers to win increases exceeding their
slight cost rise in December were unsuccessful. For PS, they were able to pass
on - at most - the additional costs and for ABS, a rollover was the best they
could do. For the most part, EPS producers generally were not even able to win
back the full EUR 10/t higher bill for SM as planned. In the short production
month of December, demand was mostly slacker than in November. For EPS packaging
grades and PS, demand was comparatively stronger. European PET prices stabilised
in December 2013. With regard to the smaller and medium-sized orders reflected
in the PIE range, producers even managed to secure slight increases - even
though the cost of both the PX and MEG contracts stagnated at November's level.
The successful price hikes were set against the backdrop of a decline in cheap
imports, which strengthened the impact of the output restrictions put in place
across Europe.

At the beginning of 2014, C2 prices have risen again by EUR 15/t. Production
machines will gradually be re-started, and many contract customers have already
ordered their normal quantities. It is quite feasible that producers will launch
another initiative to raise their margins as demand improves. To what extent
they will succeed in view of the renewed rise in feedstock prices remains to be
seen.

In January, price rises for standard grades are likely to be in line with
December movements. The contract for C3 has been fixed EUR 20/t higher, and as
many converters will need to reorder, supply will be tight. This will widen the
scope for further price increases. PP engineering compounds also will surely be
swept upward, in particular because of the good automotive economy.

As January gets underway, all signs point to moderate increases for PVC
notations. Though producers will supply sufficient material to allow processors
to restock, they will not be able to provide anything beyond that. A potential
hike in the ethylene price will definitely be factored in and some producers
might even be able push through a small margin improvement.

Converters who were not obliged to run down inventories at annual balance
sheet time stocked up in December as most assumed that the higher cost mix price
would pull ABS notations upward in January. The assumptions are surely correct
as the styrene monomer contract was fixed EUR 35/t higher.

All signs point to stability in January. The upstream sector has calmed, and
there are no imminent changes in the current market reality in sight. However,
the current situation could quickly turn into one of oversupply during the first
few months of 2014, as several new PET plants are due to be commissioned in
southeastern Europe, the Middle East and Europe itself by the middle of next
year.

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