Trend towards tightness supports polyolefin producers´ efforts to lift margins / PVC caught in a weak rollover/ PS and PET increase slightly / Further upward momentum in December

PE: November confirmed that the developments in spring this
year were not a one-off, but that epoch-making changes have since taken place,
resulting in the creation of a "new normal" for European PE markets. Producers
were unfazed by the fact that the monthly ethylene reference price rolled over,
and proceeded to lift prices across the board. Their main justification for
doing so is the market's increasing tightness and the resulting delicate balance
between supply and demand.

The supply shortage was the result of output restrictions imposed at various
production sites, coupled with the fact that European price levels are currently
too low to attract any imports that might be able to balance things out. The
latter is largely to blame on the cumbersome EU import duties. Making matters
worse was the fact that demand was unusually lively for this time of year,
supplemented by purchasers' attempts to keep their inventories at a safe
level.

The existing situation is expected to continue into December. Film
manufacturers have their hands full, and many are even questioning whether they
should shut their plants down between Christmas and New Year. There are no signs
that supply will improve in the near future. On the contrary, producers are
already saying that come mid-December, it will become increasingly difficult
from a logistical standpoint to meet delivery targets. This might well trigger a
bout of reserve buying, not least since it looks as though notations will
continue to rise in January. All of this means it is very likely that prices
will increase again - a highly unusual phenomenon for a December.

PP: Those who might have hoped to see the European PP market
return to normal in December hoped in vain. What last spring appeared to be an
unusual phenomenon revealed itself as a methodically planned game change.
Producers resolutely turned away from their earlier focus on recouping costs and
reoriented themselves toward restoring the high margins for standard polymer
they enjoyed in spring. Compounds notations remained relatively stable but began
to show some upward momentum.

The supply side's offensive was accompanied by a systematic pruning of the
portfolio of low-margin products, mainly by curbing output of simpler polymer
grades subject to intense competition. This consolidative approach could spell
the end of several older production facilities in the not too distant future.
Against this backdrop, demand in November was relatively robust, with the end
markets continuing to order well.

As the propylene contract price rolled over, the PP market leader announced
it was putting customers on allocation - see PIEWeb of 20.11.2015. Many film
converters want to keep some production lines running during the upcoming
holidays to meet strong demand; thus, it is not unlikely that prices will rise
even in the short production month of December.

PVC: European PVC suppliers were unable to fully realise
their targeted rollover in November 2015, and notations for high-priced base
grade in particular shed a few feathers. The softening in C3-based additive
costs also lowered the price of compounds. By contrast, notations for paste
grades - E-PVC prime among them - held stable.

Demand was surprisingly strong for a November. The mild weather and several
catch-up projects from the spring resulted in lively order activity from the end
markets. Producers were mostly able to meet demand without difficulties.

December's ethylene contract rose by EUR 22.5/t. Producers will of course try
to pass on their proportionate share but their chances at success are slim. Amid
the upcoming end-of-year holidays, notations will most likely roll over.

Styrenics: Following the EUR 30/t fall in the monthly SM
notation, styrenics prices showed differing trends in November 2015. PS was
particularly tight, allowing several suppliers to push through hikes even though
costs had receded. ABS prices, by contrast, largely treaded water, although a
few peak prices were capped as the impact of October's significant price decline
began to make itself felt. EPS prices, on the other hand, fell slightly across
the board. Suppliers nevertheless succeeded at improving their margins somewhat
by passing on only part of the cost reductions - the exceptionally strong level
of demand aided them in their endeavour.

Looking ahead to December, notations are expected to rise slightly across the
board. After several months of decline, the monthly styrene contract price has
finally bottomed out, and producers will insist on passing on at least the EUR
35/t cost increase. The fact that availability remains tight plays into their
hands.

PET: There were no noteworthy changes in European PET prices
in November. Contrary to earlier expectations, PX notations rose slightly,
adding EUR 15/t. Buyers of bulk volumes bore the brunt of the feedstock rise, at
least part of which was passed on. On the regrind front, food-contact grades
rolled over in mid-month, indicating that markets have firmed. The price of
mixed recyclate, by contrast, fell slightly as notations caught up with the
previous declines in virgin material prices.

Maintenance turnarounds tightened European PET availability, and Asian
material also became increasingly scarce. Processors continued to place orders,
since many of them saw prices as having bottomed out. All signs currently point
to a rollover in December, when limited supply will meet with the usual
end-of-year drop in demand.

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