Most producers pass on cost decline / Demand from construction sector uncharacteristically weak / September likely to see broad increases in the wake of the ongoing cost decline

PE: In August, most European polyethylene suppliers had
little choice but to pass on some of the EUR 15/t ethylene cost reduction.
Depending on the specific market conditions, it sometimes ended up being more,
and sometimes less. Solely producers of HDPE bimodal blown film grades managed
to push through a rollover. By contrast, high-density blow moulding grades
increasingly came under pressure from imports. As for basic LLD types (C4),
Middle Eastern imports were still few and far between. All in all, demand was
relatively good for a holiday month, which prevented prices from slipping even
further towards the end of August - despite the declines further upstream.

Producers will likely have their hands full in September trying to prevent
the decline from turning into an all-out slide. Converters will be clamouring
for their share of the spoils following the EUR 55/t decrease in September's
ethylene contract. Suppliers are ready to counter with capacity cutbacks, and
have already made it known that a run at the beginning of the month could
quickly lead them to put a stop on orders. Last summer this tactic enabled them
to keep prices stable. In the end, however, talks will likely centre on the
extent of the price cuts, which in some cases could end up being quite
substantial.

PP: In August, most producers of standard PP had to pass on
their EUR 20/t cost relief for propylene, like it or not. Only one, who had
restricted supply, held out for a rollover. This small volume did not have much
of an impact, however. The ongoing summer holidays widely dampened demand, as
was to be expected. Notations for PP compounds moved sideways, stabilised by the
many contracts indexed to C3, as the decline was not strong enough to pull
prices down to a lower level.

September is very likely to see substantial declines for PP products. The
propylene reference contract was fixed EUR 50/t below August, and demand is not
strong enough to override this influence. That said, producers are tamping down
product flow. Prices are low, so depending on the level of demand when
holiday-making converters return to work, suppliers could close order books
early to create a firming effect. In any case, notations for compounds will be
heading down, due to the many contracts indexed to C3.

PVC: European PVC producers once again found themselves
having to grant rebates in August. Following the slight decline in the monthly
ethylene contract, they had no grounds on which to base their earlier calls for
hikes of up to EUR 30/t. At the same time, the construction sector switched down
a gear, following the increased activity permitted by the mild winter and
spring. The friendly temperatures meant many building projects were brought
forward and the number of new ones is not proving as plentiful as hoped for. As
a result, demand for PVC declined - as did its price. There were no impulses for
compounds and E-PVC either, although in this instance, the lacklustre market was
more the result of the summer holidays.

In the wake of the EUR 55/t decline in September's ethylene contract, PVC
prices are coming under pressure, too. There are no signs of any extraordinary
impulses from the demand side. While there is a possibility that the downward
pressure will be cushioned somewhat by tighter supply - a result of maintenance
turnarounds and capacity cutbacks - suppliers will have a hard time improving
their margins. Any potential success will probably be symbolic at best.

PS: Prices of standard styrenic polymer grades weakened in
August on the back of slightly lower prices for styrene monomer. All products
also were affected by the slack summer holiday demand, and EPS sales suffered
from the many building projects completed during the good weather earlier in the
year. ABS distributors were able to lift prices, but this only served to recoup
the cost increases of preceding months. Volume trading remained stable.

Signs for September point to falling prices. The monthly SM reference
contract gave way by EUR 50/t. As demand is expected to remain soft, especially
from the building sector, notations for most styrenic polymers are likely to be
aligned with production cost movements, with the decline for copolymers expected
to end up somewhat weaker.

PET: With the final cost tally still unresolved - both
August's PX and MEG contracts have not been fixed yet - small- and medium-sized
PET customers managed to push through declines. Larger orders mostly rolled
over. The cold and wet weather put a damper on demand. At the same time, initial
volumes from new plants started up in Europe and its environs began to push into
the market. The picture was different on the recyclate front, where the virgin
material hikes of the two preceding months actually drove prices up
slightly.

European PET prices are expected to decline substantially in September.
Although uncertainty continues to dominate the picture upstream, there is no
denying the fact that all petrochemical products - aromatics included - are
heading down. In any case, the arrival of volumes from several recently
commissioned plants increasingly will push the PET market into oversupply, even
if these new arrivals make it somewhat less attractive for European players to
import PET from the Far East. In producers´ worst-case scenario, the declines
could end up reaching triple digits.

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