Notations mostly follow feedstocks down / Signs of imminent bottoming out drive demand / SM contract for March skyrockets / Stability likely for all other materials

PE: Following the course embarked upon in January, the
downslide in European PE prices gathered further momentum throughout February.
By the end of the month, most of the price cuts introduced slightly exceeded the
fall in the ethylene contract. Nevertheless, producers' nominal margins remained
about twice as high as where they stood before spring 2015 because most
converters were unable to realise their calls for triple-digit reductions.

From the suppliers' perspective, HDPE injection moulding grades held up best
of all, whereas HDPE film grades at times saw triple-digit cuts. This puts them
at the lower end of the scale of PE film types, a place they have traditionally
occupied. The price of HDPE pipe grades also slipped significantly, with
standard material shedding close to EUR 100/t. In this respect, the initiative
launched by producers last year to decouple prices from the C2 notation has now
paid off for pipe manufacturers.

Since most buyers expected prices to bottom out fairly soon, demand was very
lively. The resultant sales of off-spec grades, special reserves, inventoried
material and imports will likely result in a mostly normal supply situation in
March. At the same time, oil prices seem to be firming. On the other hand, the
decline in the monthly ethylene contract was rather small and demand is also
expected to decline over the Easter holidays, especially towards the end of the
month. As things stand, it looks as though these contrasting factors could
combine to keep prices stable.

PP: As February began, it quickly became clear that
producers´ hopes of improving margins would not be fulfilled. The market was
simply too long. In the end, the supply side had to make concessions of at least
EUR 60/t, in line with the propylene cost reduction; in some cases, the rebates
were even slightly higher. The market was sufficiently supplied, with off-spec
material and special offers - some of it from imports - enlivening demand. In
the homopolymer segment, Russian material lengthened supply. Offtake was just as
lively, as many buyers sensed that prices were bottoming out and refilled
inventories accordingly.
In the compound segment, the "structural
adjustments” launched by a leading PP producer began to have an impact. The same
calculation for contracts indexed to C3 is still in play, but the base price is
higher. The end result was that concessions were less generous than the supply
side's cost relief might have warranted.

The outlook for March is for a quieter PP market. To start with, feedstock
propylene was in a weak rollover. The early Easter holidays will dampen activity
in all segments in the second half of the month. Although film producers plan to
work through the holidays, they will not be operating at full capacity. Many
injection moulders - as well as compounders - will take a break. Apart from
that, a number of maintenance turnarounds are scheduled for standard
products.

PVC: Notations of all PVC grades covered in this report fell
in February. The main reason for the decline was the EUR 70/t drop in the
monthly ethylene contract, half of which was proportionately passed on in most
base PVC prices. The market leader's efforts early in the month to lift margins
met with little success since most other producers lowered their prices by EUR
35/t in the face of good availability.

The ongoing decline in notations for additives titanium dioxide and impact
modifiers also pressured PVC compounds prices. Solely in the case of paste
grades was lively demand from the construction sector able to prevent notations
from caving in too much.

Despite the renewed slight fall in ethylene, base PVC notations will likely
roll over in March. While demand is picking up, availability will tighten as a
result of maintenance turnarounds at several plants. At the same time, rising
notations in North America mean imports from this region to Europe will wane. In
fact, there are already signs that some European output will be exported. On the
compounds front, there is no impulse for an additional price decline either.

Styrenics: The EUR 50/t decline in February's SM reference
contract dragged down the prices of all styrenics. Even ABS was unable to evade
this trend, especially as the cost of both butadiene and ACN dropped, too.
Producers' attempts at pocketing part of the cost decline did not always succeed
- and if they did, the gains were smaller than planned. However, headed into
March processors should calculate with higher prices.

The massive increase in the SM reference contract will drive prices up across
the board and the onset of spring will fuel demand in many areas. Some suppliers
apparently intend to pass on the entire cost increase at least. One of them has
already announced a hike of EUR 120/t for polystyrene and EUR 100/t for ABS,
with another following suit, albeit with increases of a slightly smaller
scale.

PET: After buyers of bulk lots of European PET had already
succeeded at gaining sizeable discounts in January, notations for small- and
medium-sized volumes followed suit from calendar week four onward. By the end of
February, the rather heterogeneous price development of the first two months of
2016 had resulted in an average decline of EUR 80/t, bringing PET prices down to
a level last seen in crisis-ridden 2009. There are reports that notations for
small- and medium-sized lots are approaching those of bulk volumes, mostly as a
result of strong activity on the spot market. Contracted deliveries are under
rising pressure, and some are already in the process of being broken up. Demand
rose considerably in February, as processors started to build up their stock
levels ahead of the onset of the beverage season.

On the recyclate front it was higher-quality regrind capable of competing
with virgin material that was under most pressure. Following the slide in
primary market prices, additional declines are in the cards. However, after
their renewed fall in February, prices along the PET feedstock front now appear
to be firming.

This trend has given producers hope that they might be able to lift notations
moderately in March. They could just as easily fail - in southern Europe
especially, the market remains well supplied with imports. Needless to say,
north European processors also want to pay as little as possible. If notations
continue to decline, producers´ margins will hit such a low point that their
very existence could come under threat.

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