Falling costs push notations downward / Stability expected around
Despite the renewed EUR 30/t drop in the ethylene contract price for November, PE producers soon had to dispel any ideas of retaining some of the lower costs for themselves. In some cases - especially with LD grades - some medium-sized customers managed to land a favourably priced consignment or two in the first third of the month, but the wind then changed direction later in the month. As December approached, large customers were even happy to win the monomer reductions in their retroactive contracts. Only with HD blow moulding and blown film grades were prices a little weaker. In the case of EVA, producers also had to concede slightly more.
The European polypropylene market moved in two directions in November. The propylene contract lost momentum for the second straight month, dropping EUR 30/t after a EUR 40/t decline in October. Under such pressure, producers had no choice but to pass on their cost advantage. However, the little material produced was quickly gobbled up. At the end of the month's second week, there was little left to sell and prices stabilised accordingly. Buyers who needed more had to pay prices equivalent to a rollover. Indexed contracts for compounds automatically moved lower, but freely traded volumes showed more resilience. Production cuts for standard grades remained in place and were exacerbated by declarations of forces majeures. As the month progressed, the market tightened, so that even normal demand could not always be met.
Attempts by PVC producers to retain November's EUR 15/t cost reduction in the ethylene contract proved unsuccessful. In contrast, due to weakening demand and thus some light plundering by a couple of suppliers, producers found themselves on average having to ease off roughly EUR 20/t for the base material. As additives for rigid PVC dry blends and compounds saw only marginal movement, only the proportionate cost reduction for the matrix material was passed on. Slightly sinking prices for plasticisers led to even greater concessions for PVC (P) compounds, but this was not the case generally. Prices for PVC paste grades declined in line with the proportionate reduction in ethylene costs.
Following the steep EUR 85/t decline in the styrene monomer (SM) contract price for November, styrenics producers tried to keep part of the cost reduction for themselves. They succeeded only for EPS, not least as demand for insulation products was still buoyant due to good construction weather. Producers of PS and ABS mostly had to pass on the full extent of the price relief, which led to lively demand at first, but then quickly quieted down as converters began to speculate on further declines. When a feedstock rise dashed hopes, order activity picked up again. Many converters took advantage of the lower prices and stocked up to meet December requirements. Except in the EPS packaging segment, there was sufficient material in the market. Top-up orders could not always be filled.
European PET prices in November followed the downward trend of feedstocks PX and MEG. North America experienced similar declines, while losses were even more pronounced in Asia. However, as the month wore on, the markets - which had been characterised by oversupply following a flood of imports - began to stabilise again. The exception was southern Europe, which remains weak.
Both upstream (especially with naphtha) and in the main polymer markets, the momentum turned around during November. Thus, it was not surprising that the contract reference price for ethylene rose again by EUR 30/t in December. As the many production cutbacks also remain in place, there could well be price hikes in the final month of 2103 despite the seasonal decline in demand. Whether they will stick is questionable - at least with the low-pressure types, HD and LLD - in view of the expected arrival of so much imported material.
In December, propylene feedstock did a complete turnaround and added EUR 30/t. Due to the tightness, there was no doubt producers would be able to pass on their higher cost. By contrast, freely traded compounds settled into a rollover as the market weakened in the run-up to the holiday season.
In view of ethylene's sharp reversal upward in December, prices are likely to stagnate across the board. With demand declining in the off season, the production cutbacks should be sufficient to stabilise prices.
In December, prices for styrenic polymers are likely to move sideways or at least gain only a little momentum on the back of a minimal gain of just EUR 10/t in the SM contract. Declining demand in the short production month, along with inventory drawdowns at many converters are unlikely to give producers much scope for margin improvement.
With the markets in constant flux, December notations will likely continue to follow the feedstock trend. In this context, it now looks as if the upstream sector has firmed, though there have not been any calls for PX or MEG price hikes.