PE once again rises by triple digits / PP starting to ease / PVC remains under pressure / PS begins to slide / PET already pointing down / Price peak likely to be reached in July

PE: Whereas early in the month notations for all
polyethylene grades sold in western Europe rose by triple digits, as June wore
on, developments on the spot market pointed to first signs of relaxation in what
remains a disastrous supply situation. This cut the peaks off prices for regular
orders. June´s increases nevertheless far exceeded the cost rise. European
producers´ nominal margins for all PE grades now exceed EUR 600/t, with the
highest coming in at more than EUR 700/t - a historical record.

Although July´s ethylene contract rolled over, recent experience has shown
that feedstock costs developments no longer play a central role. That is also
why producers make little reference to them in their calls for keeping the
existing price levels. The market will remain undersupplied in July, despite all
signs of slight improvement and the imminent arrival of imports. Stock levels
have simply been depleted too much to allow the situation to magically return to
normal overnight. All that remains to be done is to wait and see how things pan
out in the coming weeks. If it turns out that relaxation is also in the cards
for August, prices could start falling in the second half of July.

PP: While in the early part of June it looked as if prices
for standard PP would continue rising unabatedly, the trend was capped later in
the month as supply lengthened noticeably. One producer in particular seemed to
be pulling polymer volumes out of a hat. Imports also were on the rise. In the
final tally, the price upswing mostly followed that of the propylene reference
contract, with film grade making slightly more ground good. Movements for
compounds largely matched the trend for monomer.

For the first time in many months, July's propylene reference price pointed
downward, by EUR 20/t. This was due to a general increase in output - from which
PP also stands to benefit. Although there is no indication that prices will be
slashed as a result, it is likely that they will come down by the same margin by
which they rose in June.

In contrast to polymer prices, notations for compounds are expected to remain
relatively firm, which will be a boon to compounders who are not
backward-integrated and must buy on the open market. Because of the recent price
surge for their input material, they literally have their backs to the wall.

PVC: The ongoing production restrictions continued to drive
up the price of S-PVC base material sold in Europe in June. Producers managed to
pocket significant increases, which far surpassed the proportionate rise in the
monthly ethylene contract and in many cases amounted to more than double. These
increases also impacted notations for ready-to-use compounds and blends. On the
other hand, it was mostly quiet on the additives front. Weak demand meant E-PVC
suppliers were unable to pass on more than the respective ethylene increase in
their sales to the important eastern European end markets.

Although availability of S-PVC improved as the month wore on, the market
remained tight. All output was quickly sold.

The situation is expected to improve gradually in July. Since costs appear to
have stabilised, it is questionable whether producers will manage to push
through their renewed calls for hikes.

Styrenics: As availability of styrene improved and with
styrenics prices already at a high level, producers found the air increasingly
thin for price hikes in June. In the end, only ABS pointed up slightly, and even
in this case, producers were only able to pass on some of their higher costs. As
for the other grades covered in this report, EPS negotiations resulted in a
rollover, while special offers brought down the average PS price level.

The improved supply situation has been the main reason behind buyers'
strengthened position in price talks. In the case of PS and EPS, the market
situation had already begun to relax in May, and with imports starting to arrive
once again, the tightness for ABS is also starting to ease. In addition,
processors limited their June purchases to just the necessary volumes,
speculating on price declines in July.

That bet is likely to pay off: After July's SM reference contract fell by EUR
85/t, styrenics prices will probably also decline across the board. Although
producers will likely try to limit the price reductions to the cost decline, the
impending holiday season and resulting lower demand might force them into making
further concessions. However, future demand will also depend on processors'
price development expectations, that is, whether they will interpret the
anticipated declines in July as a signal to buy or as an indication of further
reductions in August.

PET: June brought an end to three successive months of rises
for European PET notations. As PX costs stagnated, the price of small- and
medium-sized PET orders mostly rolled over. Notations for high-priced small
volumes actually fell a bit. Bulk orders could once again be had for less than
EUR 1,100/t, and some material sold through the trade channel even went for less
towards month´s end. The decline is partly the result of processors´ marked
refusal to buy - itself borne out of an expectation of falling prices, which the
fall in notations in China appears to be pointing to.

Processors are counting on significant declines in July. With Asian notations
falling and the euro holding stable despite the latest troubles surrounding
Greece, import activities are once again on the rise. All considered, producers
will likely have a hard time recovering their margins. On the contrary, pressure
on prices appears to be rising, as the situation of structural oversupply once
again comes to characterise the PET market.

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