Polyolefins increasingly decouple from declining feedstocks over course of the month/ Styrenics and PET already rising / Significant uptrend indicates market turnaround come April

PE: European PE markets continued to firm over the course of
March, driven mostly by increases along the oil chain. While many processors
took advantage of the calm surrounding the Easter holidays late in the month to
stock up, in a number of important segments, several producers stopped taking
orders as early as mid-March. Such moves were not always based on real
bottlenecks, but mainly born out of the belief that prices would rise after
Easter. In the end, notations ended up in a weak rollover in March.

Every market player was probably aware of the fact that prices would rise in
April. It quickly became clear that oil notations would continue to firm and
that the ethylene reference price for the first month of Q2 would point clearly
upwards. After a lot of haggling, the contract was finally fixed EUR 60/t
higher, and thus only slightly exceeded the cost increase indicated by naphtha.
Producers' exaggerated calls for triple-digit increases were simply unrealistic.
PE producers, whose operations tend to be integrated, will now want to factor
this in to the polymer price. They will likely succeed at recouping the cost
increase, with any additional margin improvement a welcome bonus.

PP: At the beginning of March, the European PP market still
showed some weakness as the C3 reference contract remained stable. By mid-month
at the latest, however, rising notations for oil and naphtha also prompted
polymer notations to firm. As a result, producers moved from a rollover to
slight increases, supported by dwindling and thus more expensive imports. Supply
shortages due to maintenance turnarounds also began to make their influence
felt. Whether or not this necessitated closing order books is open to debate -
after all, sellers often hold back deliveries when prices start rising, as they
stand to get more for their products a month later.

Prices for PP compounds followed the propylene reference contract and thus
remained stable.

In April, all price indicators are pointing upward. Triple-digit hikes for
standard PP are being talked, driven by the EUR 60/t increase in the propylene
reference contract as well as the beginning of several maintenance turnarounds.
At present, imports offer no alternatives. This means that polymer prices could
rise substantially, exceeding producers' cost increases. Such a sharp rise for
base polymer could also push notations for compounds higher than the change in
indexed contracts would warrant.

PVC: All efforts notwithstanding, most European PVC
producers in March had to pass on the slight decline in the ethylene cost to
their customers. Since demand from the end markets was still rather muted before
the Easter holidays, processors' inventory levels remained high. As a result,
the latter were not worried about obtaining material. In addition to the decline
in base material costs, blends producers also had to pass on the fall in the
price of several additives. Only manufacturers of PVC paste grades were able to
hold notations stable, thanks mostly to unexpected exports to eastern
Europe.

However, headed into April, the situation has become entirely different.
Ethylene is pointing up, and taking PVC base materials and numerous additives
along for the ride. In addition, a number of facilities are due to be serviced,
and seasonal business will also ramp up demand in April. All this means that
producers could be able to achieve their goal of improving margins.

Styrenics: The surprisingly strong EUR 100/t increase in the
SM contract notation took styrenics prices on an upward flight in March.
Following a round of very tough negotiations, however, most PS and EPS
processors were able to resist producers' calls for passing on the full
increase. That being said, suppliers' bargaining position was strengthened in
mid-month, as demand started to rise following the decision by a number of
processors to stock up ahead of the widely anticipated uptrend in prices. As a
result, producers adopted a much more resolute approach, especially when it came
to low-lying notations. By contrast, western European ABS manufacturers from the
get-go insisted on obtaining at least the EUR 55/t increase in composite costs.
They even added a euro here and there for prices that had previously stood
rather low.

Styrenics prices will likely continue rising in April. Driven by higher
benzene and ethylene costs, the reference contract was lifted again, this time
by EUR 95/t. This latest increase will likely take PS, EPS and ABS to a higher
level, too.

PET: The rises along the oil chains gave European PET
producers the necessary psychological backing for their calls to lift prices.
The main reason for the resulting increase, however, was the situation in Asia -
which for years now has played first fiddle when it comes to PET pricing. The
fact that demand was starting to pick up in the Far East, where spring is also
getting underway, resulted in fewer imports arriving in Europe. In the latter
region, demand also began to pick up as the beverage season got underway, and
was supported by processors' perception that notations were bottoming out. The
result was that availability continued to tighten as the month wore on. In the
final tally, producers were able to improve their margins, although the gains
still fell short of the losses they had had to incur in the first two months of
2016.

But the scales could easily tip in their favour in April. Notations for key
PET feedstock PX are pointing up, seasonal activity is gearing up a notch and
there is no indication that imports will pick up in the near future. All
considered, there really is little direction for PET to go in the coming weeks
but up. The extent of the hike, however, will depend on the cost mix. A virtual
explosion in prices, however, is highly unlikely given that higher notations
would inevitably also result in higher run rates at plants in Europe and its
immediate environs.

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