PIE - Polymer Price Reports

Standard Thermoplastics June 2016

Most PE grades slide / PP pointing down, too / PVC producers still achieve slight margin gains / Styrenics inching up / PET under pressure / Trends expected to uphold in July as well

PE: In early June, European PE producers had launched calls
for hikes of up to EUR 50/t, set against the backdrop of the EUR 25/t increase
in the ethylene reference contract. Converters met these demands with utter
incomprehension. Supported by those suppliers that were offensively granting
rebates, many processors were able to ignore those players seeking hikes. Order
activity often ended up below expectations, meaning buyers actually did not find
it difficult to exercise restraint. The reservations became even stronger when
the UK voted in favour of "Brexit" - a decision that resulted in immense
insecurity. The result was a slide on almost all PE types, which was more
pronounced for material competing with imports. Solely EVA managed to escape
this trend, as the decline in demand only partially alleviated the overall
tightening tendency. July's ethylene contract was fixed EUR 10/t higher. Given
the experience of the last year, buyers have become increasingly ironic about
feedstock price developments. If they are able to lower prices, they will do so
- and headed into July this exactly appears to be their strategy.

PP: As June progressed, European PP producers had to
gradually give up hope of passing on the full EUR 17.50/t rise in the monthly
propylene contract. The market was too well supplied - from a number of sources
- and demand was too hesitant. Only the market leader succeeded in standing its
ground for some time. Sellers even had to make concessions for injection
moulding grades here and there. By contrast, producers of film grade thought the
cost rise was sufficient to raise prices. Even if buyers were able to claw back
some of the advantage, producers' margins were still at the level of what is now
the "new normal.” PP compounds saw no movement at all, as the impetus from C3
was not enough to trigger any change in the index. The market continued to be
influenced by the discussion about plans to index prices to standard PP rather
than C3. The two largest players have been unable to agree on this, as one
favours leaving the system as it is. The discord is likely to persist for some
time to come. The July propylene reference contract held steady at EUR 17.50.
Producers will be out to recoup the higher cost as well as some of the margin
losses suffered in June. The market leader is unwilling to give an inch, but
smaller producers and importers with no such inhibitions are undercutting its
price. Depending on the level of demand, it is entirely possible that prices
levels could erode. That said, notations for some niche PP products could see a
slightly upward tick. Compounds can be expected to remain mostly stable.

PVC: Over the course of June, PVC producers found themselves
having to compromise on their earlier calls for hikes of EUR 40/t, instead
coming closer to the actual cost rise of EUR 12.5/t. That notwithstanding,
suppliers of bulk volumes especially were able to realise slight margin gains.
These were partly the result of several imbalances in central Europe, including
the outage in Kralupy as well as the strikes in France. As for the remaining PVC
types contained in this report, the price of unplasticised dry blends and
compounds (PVC-U) stood out with disproportional hikes. Notations for titanium
dioxide continued to rise, further pressuring prices. Looking ahead towards
July, all signs point towards sideways or slightly upward momentum. Although the
monthly ethylene contract rose by only EUR 10/t, PVC-U notations continue being
driven up by the increase in titanium dioxide costs. In the end, a lot will
depend on how the weather develops. In the case of dry conditions and sunshine,
demand from the public works sector will likely pick up, which in turn would
strengthen producers' hand.

Styrenics: Prices for styrenics trended upwards after the
July increase of the SM reference contract by EUR +60/t. It quickly became
apparent that the increase was rather short-lived as SM spot prices dropped
sharply right after the month began. This resulted in a rather large price range
in styrenics agreements. Even if some agreements still reached the level of the
cost increase in the first days of June, the premiums reduced in the course of
the month. PS and ABS prices were particularly under pressure from cheap import
goods. At the beginning of June, it was already clear that the potential for
decreases would dominate styrene prices in July. The prospect of falling prices
massively impacted demand because processors did not buy more than absolutely
necessary. Obviously, this also makes for rather empty stocks. Demand for
styrenics should therefore be very lively in the beginning of July, especially
as the SM has decreased by EUR 125/t, providing additional buying incentives.
Producers will factor in June´s price developments however, passing on only part
of July´s cost reduction to their customers in many cases. The processors´
purchasing behaviour should again depend largely on future price expectations in
the second half of the month. The beginning summer holiday season generally had
a dampening effect.

PET: The European PET market remains in the grasp of the
general global oversupply, and muted demand resulted in a slight decline in
prices in June 2016. While some players in southern Europe were able to uphold a
rollover, notations in the northwestern part of the continent continued to
erode. Costs trended stable to slightly firm and therefore did not offer any
grounds for potential increases. By the end of the month, the UK's decision to
leave the European Union dealt another blow to spot notations especially. Thanks
to the fact that a large number of Asian companies and traders have their
subsidiaries in the UK, the country plays a more important role in the European
PET market than is the case for other polymers. It therefore comes as no
surprise that the fall in the pound's value will result in quite some
turbulence. This insecurity only served to reinforce buyers' already restrained
attitude. Even before "Brexit", the bad weather in large parts of northwestern
Europe had kept order activity far below producers' expectations. Demand was
slightly better in the southern part of the continent, which in turn had a
stabilising effect on prices. Which way the winds will blow in July is anyone's
guess right now. Availability remains long, and it is unclear when the initial
shock over "Brexit" will subside. Apart from that, there is no clear indication
of the way in which costs are headed, and the weather remains unpredictable,
too. There is no denying that PET prices remain under latent pressure, but it is
unclear whether and by how much notations will decline in the end.

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