Notations take cost developments as their cue / Markets mostly balanced / All signs point to most notations rolling over into March / PS and PET under stronger pressure

European PE producers began February on an optimistic
note, hoping to realise a rollover. They soon had to realise, however, that
their goal of pocketing the EUR 40/t decline in the month's ethylene contract
was far-fetched. Even though demand picked up, the market was largely balanced
and there were no reports of any bottlenecks. During the course of the month,
rapidly rising spot notations and a number of nervous suppliers then finally put
paid to the rollover dreams, so that in the end, producers had to pass on the
monomer decline. LDPE suppliers even found themselves granting rebates of EUR
50/t after the trade channel freed up some of the volumes purchased last fall.
Although March's ethylene contract was fixed EUR 20/t lower, suppliers can draw
on two developments in their renewed rollover calls. For one, oil notations have
firmed in the wake of the crisis in Ukraine and are sure to take naphtha prices
up, too. Secondly, with the weather still mild, demand is sure to pick up as
spring gets underway.

After February's propylene contract rolled over,
European producers of standard PP called for price increases of up to EUR 20/t
to improve margins. They were unsuccessful, however, as the market was
well-balanced and spot notations pointed downward. In the end, all polymer
market players agreed on a rollover. For compounds it was a foregone conclusion,
anyway. Producers were able to bring buyers paying low prices up to scratch. In
March, the C3 contract rolled over again. With supply and demand still in
balance, the same sideways movement was seen for all PP grades.

European PVC producers seeking hikes of up to EUR 30/t
in February saw their efforts thwarted by a further decline in production costs.
The most they achieved was a rollover. In some cases they even had to accept
slight price declines - despite livelier demand. Additives held notations for
compounds mostly stable, but modifier prices rose slightly. In March, ethylene
gave up a further EUR 20/t, but producers' margins continue to face severe
pressure from lower caustic soda prices. As maintenance turnarounds are on the
agenda this month, the market could see some tightness for base polymer. At the
same time, the approaching spring season could provide an impetus for demand.
All in all, the signs point to a weak rollover.

The slight rise in February's styrene monomer reference
contract pulled prices for styrenics up with it. But as producers of PS, EPS or
ABS were unable to recoup the full extent of their cost increase, their margins
deteriorated.
Buyers' hopes that PS prices would come down in March curbed
February demand. Despite it being the off-season, orders for EPS were driven by
the building sector, which profited from the mild weather. Overall, ABS activity
showed little change against January. Demand for styrenics will increase in
March if the EUR 57/t decline in the SM reference contract provides converters
with an impetus to buy.

In the grip of the -92/t decline in the PX feedstock
contract, European PET notations also headed downward in February. Producers
nevertheless managed to add a margin component as they only passed on about half
their cost reduction. Across the Atlantic, too, PET prices continued their
decline, while notations in Asia stabilised. Although European plants continued
to operate at reduced output rates in February, the market remained
oversupplied. Imports have meanwhile breached the 30% mark, insiders report,
adding that stock levels remain high amid the still muted demand. In March,
producers hope that seasonal business will awaken from its winter slumber. Asian
numbers already appear to have stabilised, but PX could still shed a few
feathers. Following the course taken by ethylene, MEG also appears to be heading
downhill. In addition, several converters have already said they intend to push
for the remaining cost reduction producers pocketed in February. It is thus
highly likely that PET prices will continue their decline in March.

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