With around 2m t of polyolefins consumed monthly in Europe alone, some EUR 200m of additional liquidity shifted from converters to suppliers in January merely as a result of the price increases. As always, it takes time for these increases to be passed on to the end-customers, a situation that has led to significant liquidity bottlenecks at converters. As a result, quite a few medium-sized polymer buyers were nearing the end of the credit lines granted by their suppliers. At the same time, the price escalation clauses normally applied in the end markets were gradually proving inadequate. Consequently, many converters face situations that can only be described as dramatic.
Among the polyethylenes, LDPE remained tight, while the linear low-density grades moved closer to being balanced again, following several months of a near surplus. The HDPE portfolio was extremely short as scheduled maintenance turnarounds coincided with yet more technical problems, resulting in fresh forces majeure. Imports were few and far between. PP copolymer was short, but the supply situation of other PP products was fairly balanced.
At the beginning of January, the waning holiday season slowed activity somewhat and later in the month the stiff increases announced by producers clouded any desire to buy. Nevertheless, demand in many segments was surprisingly robust.
An end to the misery is not in sight. In February, C2 and C3 climbed higher, even if the gains of EUR 25/t and EUR 35/t respectively were not as strong as a month earlier. As a result of the global explosion in benzene prices (up EUR 271/t since the beginning of the year), styrene soared by a triple-digit margin to heights that frustrated the market. Polymer producers have left no doubt as to their resolve to pass on these increased costs. No one wants to run the risk of insolvency; past experiences are still too fresh. With supply growing tighter and demand still rather resilient, notations for standard thermoplastics will inevitably continue to rise. Challenged converters will have to make the urgency of the situation clear to the end customers. In some cases, forgoing the sale altogether could well be the harsh reality in February.
Ineos Olefins & Polymers Europe has declared force majeure for LDPE from its Cologne / Germany site. The larger of the two lines unexpectedly had to be taken off stream on 26 January for unexplained reasons. It is not expected to restart before mid-February – see Plasteurope.com of 31.01.2011.
Ineos is reported to have also declared force majeure on 25 January for HDPE from its production site at Lavera / France. The company has declined to confirm this to Plasteurope.com, however.
Sabic Europe was forced to shut down a cracker in Geleen / The Netherlands on 26 January following technical problems. It is expected to go back on stream in the first week of February – see Plasteurope.com of 28.01.2011.
To eliminate a technical problem, Dow Europe had to idle one of its three crackers at its Terneuzen site in The Netherlands on 28 January. The work is likely to take around a week – see Plasteurope.com of 28.01.2011.
Shortly before the end of the month, Polimeri Europa began the process of restarting LDPE production in Dunkirk / France, but company sources have indicated that the force majeure declared on 14 January will not be lifted until adequate stocks have been built up – see Plasteurope.com of 18.01.2011.
Ineos Vinyls will carry out annual maintenance in February on its VCM and PVC facilities in Runcorn / UK.
Sabic will perform maintenance work on its new LDPE plant at Wilton / UK for three weeks starting at the end of February.
After more than two weeks, Borealis has finally eliminated the frost-related technical problems with its HDPE / LLDPE production at Stenungsund / Sweden. Plasteurope.com has been told that production returned to normal in the 4th calendar week.
The situation for individual polymers in January 2011 was as follows (research completed in the 5th calendar week):
At the end of January, frustrated by the lack of alternatives, the major converters finally accepted producers’ targeted price increase for the retroactively negotiated film contracts. The supply side’s quest began with calls for increases of up to EUR 150/t in response to the EUR 105/t jump in the ethylene contract (C2). In the end, the range of price hikes for film and injection moulding material extended from just the monomer increase to EUR 130/t. In most cases, this meant a price rise of around 8% compared with December, and more than 35% compared with January 2010. Over the same period, however, producers' cost base has risen by just over 25%, so the upshot is that the difference has gone toward improving margins. After a rapid thrust of around EUR 100/t at the beginning of the month, spot notations came to a halt at EUR 1,380-1,400/t. In North America, the picture was more mixed. PE notations remained stable or at best added a few dollars.
Supply: Balanced to tight. For the feedstocks (C2/C3) and, farther upstream, naphtha, the arbitrage window towards Asia opened at the beginning of the month and fuelled the upswing. Exports to the world’s current high-price region were facilitated by the initially weak euro. At the end of the month, major producers asserted that they had done everything possible to ensure maximum polymer output. Yet one supplier was basically missing 10 days' output due to technical problems at one of its French plants. Other producers also had their customers predominantly on allocation. Apart from that, the long-awaited start-up of Polimeri Europa's LDPE line in Dunkirk failed once again, leading the company to declare force majeure toward mid-month. Traders also metered out their material carefully and were frequently reluctant to release stocks as they speculated on even higher prices. Only small volumes of imports of extrusion material arrived from Iran.
Demand: Normal to good. Call-offs of packaging material for food and hygiene applications continued lively, but in the last third of the month, producers cooled matters down somewhat by imposing order stops. Some converters also topped up their inventories of more specialised grades for pharmaceutical packaging, which in some cases led to stronger rises at the upper end of the scale, especially at the beginning of the month. Orders from medium-sized accounts in the distribution segment, on the other hand, were limited to essentials. Overall, January volumes in Germany, France, Belgium and Poland did not quite match those of January 2010. This is not entirely surprising in view of the fact that even large film converters sometimes had their orders blocked because of exhausted credit lines. A few buyers forfeited as much as a third of the monthly volume this way.
Outlook for February: Producers have reacted to the renewed increase of EUR 25/t in the February ethylene contract with an extensive list of price rises. Even before the latest contract was settled, one producer declared its intention to tack a further EUR 30/t onto the monomer increase in order to recoup the margin losses from Q4. Others followed shortly afterward, using the same arguments, with calls for EUR 60/t. One supplier actually declared its target to be EUR 100/t. Western European production of LDPE is still lagging, and although Polimeri in the meantime has finally succeeded in getting its revamped production plant in northern France back up, the restrictions will remain in place for now, due to the need to build up stocks.
Manufacturers of coated products will be particularly hard hit by the latest FM from Ineos for autoclave grades from Cologne. There are also signs of bottlenecks for monomer. Sabic and Dow will have to shut down substantial parts of their respective cracker capacities at Geleen and Terneuzen in The Netherlands at the end of January. Although both companies expect the interruptions to last only a few days, the global picture shows a number of other quite significant restrictions emerging. In Asia, for example, several major plants are due for annual maintenance in Q1. In total, cracker capacities for around 1.3m t/y of ethylene (C2) will be at a standstill. For Q2, also in Asia, additional capacities of around 5m t/y will be out of action. It is, therefore, possible that there will be chronic shortages of feedstocks worldwide in the near future. In this situation, most converters will buy whatever they can find. Where buyers have regular suppliers, they will generally only be able to call off their allocated volumes, and will inevitably turn to imports wherever the opportunity arises. There, too, however, the flow is more a trickle than a gush. The fact that traders speculatively stocked up in January despite higher notations is another indicator of a further price rise in the offing. At any rate, it is virtually certain that the cost increase will be factored in without any deduction.
Producers focused their attention primarily on lifting the exceptionally low price levels that had settled in during the import glut last year, and in some cases managed to push through hikes as high as EUR 150/t for C4-based material. They were assisted by the arrival of Iranian imports that were traded net at almost the same level as European material. But the lower price levels were the prime targets not only for C4 grades. The higher-grade C6/C8 products did not escape attention either. While the increase for medium and small orders and for more specialised grades was largely in line with the EUR 105/t for ethylene (C2), rates at the bulk end of the range climbed by as much as EUR 120/t. On the C4-based spot market, notations did not move up quite so dynamically, but drifted around the EUR 1,250/t mark.
Supply: Balanced. Especially at the beginning of January, European output of higher-quality material (C6/C8) was still restrained due to wintry weather and only began to return to normal later in the month. Imports of C4 material were still quite rare, and they were not priced especially attractively. The usual flow of product from Central America seems to have dried up completely.
Demand: Normal. Large converters began building up stocks of finished product for the agricultural season, and the market moved into high gear in the second half of January as customers called off significant quantities of cast material for stretch film. Demand from the transport packaging segment has improved quite considerably in recent weeks. Many buyers for areas such as beverages, glass and paper production as well as fabrication have also stepped up their ordering activity. Here, delivery times for finished products are inevitably becoming longer.
Outlook for February: To dampen the practice of cheap blending of LLDPE with LDPE to produce film, producers initially wanted to reduce the considerable gap between the two polymers. As this did not pan out in January they will probably try again over the course of Q2. As a start, they have announced hikes of EUR 60-100/t for February, citing not only the need to recover margins and balance out price levels but also the desire to pass on the EUR 25/t rise in costs. Output from European manufacturers of high-grade material (C6/C8) was fairly stable at the beginning of the month, and the euro’s slight recovery should brighten the prospects of imports reaching European shores. On the other hand, there are unlikely to be any short-term effects. Converters are dreading the prospect of a considerable increase in pre-financing requirements for stocking up silage film. Because a considerable amount of advance production will be needed in February, the planned price increases will soak up further liquidity. Even hardened buyers know there is no way around this, however. The upward pressure remains.
Calling for hikes of up to EUR 170/t, producers attempted to narrow the wide gap between LDPE and HDPE notations. Towards the end of the month, some did actually manage to push through increases of this magnitude but these were certainly not across the board. Nevertheless, even the smallest increases were above the EUR 105/t rise in the cost of ethylene. On average, notations climbed by around 10%, with the highest success rate achieved by producers of blow moulding, film and injection moulding products, where hikes of EUR 120/t were fairly common. HDPE now costs 18% more than in January 2010 but with the cost of ethylene (C2) having risen by almost 30% over the same period, producers have undeniably seen a significant loss of margins. Over the month, spot notations inched their way from EUR 1,100/t upward to land not far short of EUR 1,200/t.
Supply: Tight. To start with, production at Borealis' Stenungsund / Sweden site, which had been closed due to frost, only returned to normal at the end of January. Subsequently, the Ineos production at Lavera / France appears to have gone down around the middle of the month. Finally, a Central Europe-based company’s production run of film grade planned for mid-month was delayed to the end of the month for technical reasons. Another producer began turning down orders for injection moulding material even earlier. As before, supply was simply insufficient for the many HDPE grades. Even large regular customers, who normally enjoy a continuous supply of material, faced delivery delays of several days. Some buyers did nevertheless manage to track down material from Iran.
Demand: Normal to good. As expected, the month began rather quietly but quickly picked up again as February approached. On balance, despite the extreme increase in costs, order volume was actually higher compared with January 2010. After finalising their 2010 balance sheets, producers of blow-moulded packaging for the pharmaceutical sector began refilling polymer inventories. As usual at this time of year, there is increasing demand for containers for infusion solutions because of skiing accidents. Demand has also been strong for blown film grades for food packaging. Manufacturers of injection moulded products for the sanitary sector were also increasingly turning their attention to inventory building.
Outlook for February: Producers’ efforts to reduce the price gap between HDPE and LDPE will continue this month. Because ethylene (C2) has risen by EUR 25/t against January, they are seeking hikes of EUR 60-100/t. Even after the successful return to full production at Borealis in Sweden, the confused situation in France is having an impact on western European output. While Central European producers should be able to contribute to the supply situation this month, priority will be given to customers on the waiting list. Nevertheless, it will have an indirect positive influence on the market.
Many converters report continued lively ordering from their end markets. Although the food sector has slowed a little, many converters are ordering in the usual pattern. Discussions over prices seem to be fairly rare. One building industry supplier complained to Plasteurope.com that the sudden leap in raw material costs is already putting operations under considerable pressure in Q1 as home improvement catalogue prices were calculated in September 2010 at prevailing costs. As players are currently more concerned about securing supplies, it is widely expected that at least the cost increase will be passed down the chain.
The ethylene contract (C2) for January rose by EUR 105/t compared with December. Vinyl acetate monomer (VAM) has also been under unremitting pressure. There was some wrangling going on as February started and the Q1 VAM contract had still not been fixed. If account is taken of the presumably sharp rise in the Q1 contract for VAM when calculating the EVA cost mix, it would translate into a rise of around EUR 100/t for grades with a VAM content of 18%. The C2 cost rise already had been reflected in full in the pricing of higher-ethylene grades at the bottom end of the scale. In products with a smaller C2 content, the rise was restricted to EUR 80/t at the upper end.
Supply: Balanced to tight. The higher the VAM content, the tighter the supply. At the beginning of January, one supplier already was facing limitations and a week later another reported restrictions.
Demand: Normal to good. Producers still able to supply described the demand for higher-VAM material as exceptionally lively. The transport packaging segment was particularly active, so that converters ordered more polymer for stretch hood production. EVA grades for surface finishing were also much in demand.
Outlook for February: At press time, only the ethylene contract (C2) had been fixed EUR 25/t higher than in January. It can be assumed at minimum that the increase of EUR 80/t already announced for VAM in January will also be reflected in the Q1 contract. This would mean a further rise of around EUR 20/t in the cost mix for EVA and would put additional pressure on producers to lift quarterly EVA prices. Demand for EVA, which has surged in recent months due to widening applications, will be impossible to meet in the short term.
To optimise production, producers are now asking converters for extensive forecasts of their future requirements. Flexibility is gradually giving way to stricter allocation. Most buyers have already submitted their orders for February and hope their requirements will be met. Alongside fresh demand due to new applications, seasonal preparations are also beginning in the beverage industry. Producers increasingly can be expected to take margins into consideration when allocating volumes. It is highly likely that the EVA price increase will reflect significantly more than higher costs.
Propylene (C3) leapt forward EUR 110/t in January to an all-time high of EUR 1,105/t. As polymer producers immediately factored in their higher costs, PP notations skyrocketed by 8% on average against December. This means it has added some 35% since January 2010. Even for the standard homopolymer, spot buyers had to pay as much as EUR 1,300/t. The global shortage of the C3 feedstock was also evident in North America, where PP also made gains against December.
Supply: Balanced to tight. One producer battled for a long time with technical problems in the production of copolymer, another's plant was down for 10 days and a third appears to have diverted excessive C3 to higher-margin applications or shipped product to higher-priced Asia. Due to the feedstock shortfall, various PP production runs also had to be postponed. As there were no reserves, demand had to be met largely from current output, which was entirely inadequate. Import offers from South America proved only seldom to be of any interest. Although there was a considerable supply of simple raffia grades, the low-temperature-resistant copolymer materials so sought-after by food packagers were entirely lacking. In Asia, PP production also began to suffer from an acute shortage of propylene, which is pushing the global market further into a state of imbalance.
Demand: Normal to good. In the second half of the month, ordering livened up. Producers' comments varied from "we could have sold more if we had had the stocks" to "our orders for film material declined somewhat." However, all agreed that far too little copo was available. This shortage was accompanied by exceptionally strong demand from the food packaging sector. The dairy sector reported high capacity utilisation, and one player told Plasteurope.com that its plants were being run five-to-seven days a week. Manufacturers of semi-finished products such as sheet, rods and pipes also began to stock up relatively early. In contrast, due to the hard winter, thermoforming sheet manufacturers booked fewer orders for salad trays and thus have longer inventories. Manufacturers of caps and closures had stocked up in good time in December and were able to take a break from ordering.
Outlook for February: Producers want at minimum to pass on the latest increase of EUR 35/t in the monthly propylene contract (C3). Some will also seek to compensate for the margin erosion – long forgotten by converters – in the final quarter of last year. Consequently, announced price hikes range from EUR 35/t to EUR 50/t. In view of the continuing C3 shortage, PP output will not improve much in the short term. Even after the key copolymer facilities resume normal operation, the build-up of stocks for the high-turnover standard grades will take many more days.
For the full four production weeks in the short month of February, producers of semi-finished products are planning a normal order volume. Producers of thermoforming sheet are hoping for an early start to the asparagus season but it is not only when the season begins that is causing converters to worry, but also whether they will have adequate stocks of PP for the entire duration. When order activity does pick up, polymer producers should have little difficulty factoring in at least their extra costs.
The cost of ethylene, about half of which is factored into the polymer price, rose by EUR 105/t in January against December. The targeted price increases initially had included a component to recoup the Q4 2010 margin loss but this was quickly trimmed to the cost increase of EUR 60/t. Even this met considerable resistance, however. While increases varied according to the previous price level, grade, application and region, the month ended with an average rise of EUR 35/t.
Supply: Good. Although PVC output has improved since the beginning of the year at the comparatively few critical locations, there are still some technical hurdles to be taken before the FMs are finally lifted. Due to the lingering chlorine outages, both Germany’s Vestolit and Poland’s Anwil are buying feedstock in an effort to keep polymer production sufficiently high. Repairing the affected chlorine production lines has proved far more difficult than originally assumed, some company representatives concede. All in all, producers were able to basically meet demand for pipe and higher-grade material without too much difficulty.
Demand: Weak to normal (pipe), normal (film, cable). During the course of the month, window profile manufacturers retroactively increased their evidently too conservative earlier forecasts, and these were filled more or less without delay. Some producers described January's order volumes as about the same as in 2010, while others said they were considerably higher.
Outlook for February: As producers were stuck with part of their extra cost in the first month of the new year, they intend to use the second month – traditionally much stronger – to do some catching up. The cost of ethylene (C2) rose yet again by EUR 25/t in February and producers will try to recover not only the half of this that is usually factored into PVC, but also previous margin losses. Depending on their level of success in past weeks, they will target increases of EUR 60-80/t. Supply will suffer further as Ineos performs annual maintenance on its VCM and PVC lines in Runcorn / UK. Converters’ forecasts have been adapted to include inventory building.
Profile producers have informed window manufacturers of price increases from mid-February, and will significantly increase polymer orders to meet the mounting demand downstream. Seasonal preparations are also already under way elsewhere for the approaching building season. Both for pipes and profiles and for building sheet, ordering activity is likely to increase week by week. The cable sector is operating at high capacity anyway, due to the continuing inflow of orders from the automotive sector. As converters come under mounting pressure to buy, their scope for negotiation will inevitably decline, giving them little choice but to accept at least part of the producers' projected increases.
News of the increases for the three SM contracts, which rose by an average of EUR 126/t in January, plunged many converters into consternation. While producers passed on their increased costs almost undiminished over the month, their customers' mood worsened daily. Due to the high prices, converters quickly approached their credit lines and liquidity was strangulated. To make matters worse, the price escalation clauses that converters can apply in their dealings with customers take some time to bite, and this considerably worsened trading figures in the short term. Against this background, converters’ successful parrying of the targeted EUR 140/t hikes was only mild consolation.
Supply: Balanced. In December, producers trimmed PS output to take account of the holidays. Ahead of the scheduled February maintenance turnaround, one supplier set about building up reserves. In most cases, customers were on allocation, although, generally speaking, producers were able to meet demand without much problem.
Demand: Poor. Stunned by the hefty price increases, converters began the month on a low key, but when SM spot notations began to rise on news of the benzene surge, order activity was stepped up again. Buyers evidently realised that playing a waiting game was not doing much good this time – in fact, quite the opposite.
Outlook for February: The European benzene contract notation surged by a further EUR 122/t in February, meaning that this key feedstock has added a staggering EUR 271/t since the beginning of the year. Three styrene (SM) contracts for February were settled EUR 96/t higher, on average. Shortly before press time, one large PS producer had announced rises averaging EUR 105/t for February orders. In an attempt to defuse the pressure generated by rocketing benzene prices, producers first refrained from buying the key aromatic, then cut production or even took entire lines off stream. Major players told Plasteurope.com that they were now sourcing styrene from the PO/SM facilities that are being run flat out. Nevertheless, insiders expect the global shortage of benzene to continue at least three more weeks before any relief is noticed. At the same time, producers have reassured their customers that PS production is unlikely to be negatively affected. This statement, however, is contingent on unconditional acceptance of a cost pass-through. Demand from the food packaging segment will continue sufficient, as these converters will have no option but to buy and will inevitably have to dig deeper into their pockets.
The three SM contracts for January rocketed by an average of EUR 126/t compared with December 2010. With the building industry still very quiet, producers were unable to fully recoup their extra costs, either for insulation or for packaging material. In the end, they netted EUR 100/t more, which means they began the year with a further deterioration of margins.
Supply: Balanced (insulation) to good (packaging). In view of the wintry weather, output of insulation grades was significantly reduced, but production of packaging grades continued more or less without interruption. At least one back-integrated producer is said to have cancelled a benzene order in view of the exorbitant cost and then cut SM output before finally shutting the facility down. On the whole, however, SM demand could be met.
Demand: Weak (insulation) to good (packaging). Manufacturers of insulation grades limited their call-offs to contract orders but packaging producers began refilling stocks.
Outlook for February: The worldwide furore surrounding benzene catapulted the European contract notation EUR 122/t higher in February. As a consequence, the three styrene (SM) contracts for February rose by EUR 96/t on average. Although EPS producers had not announced any price increases at press time, there is little doubt that they will push hard to factor in this latest significant cost rise. A number of producers have said they intend to significantly raise EPS insulation grade output in February, in view of the approaching building season. The supply situation could be affected by the build-up of bridging stocks by Finland’s Styrochem in preparation for a maintenance turnaround in March. Availability of packaging grades will be restricted to a certain extent by the annual maintenance planned at Sunpor.
With prices so high, insulation material manufacturers are rather reluctant to stock up, despite the approaching building season. Converters have already warned their customers of price hikes from 1 February or, at the latest, from 1 March. This time, they will at least not need to fear competition from products such as rock wool, which is also surging. Things will not be quite as easy for packagers, as prices for many catalogue items were calculated last year on the basis of Q4 costs. In the end tally, a significant proportion of the additional cost is likely to be factored into insulation grades, while the impact on packaging material could be even greater.
|Prices Standard Thermoplastics (EUR/t)|
|Polymer types||January 2011||December 2010|
|‹ 18% vinyl acetate||1,800||-||2,030||1,690||-||1,950|
|High impact injection||1,825||-||1,865||1,700||-||1,740|
|High impact film||1,820||-||1,860||1,695||-||1,735|
|Prices listed above represent the average price paid in western Europe by large consumers of natural material for normal grades of standard thermoplastics in 20-tonne lots. They were obtained by Plasteurope.com in consultation with plastics converters, producers, distributors and other merchants and are intended solely as a guide. Data without guarantee. Compiled: 31 January 2011.|
More on PIEWeb.com: Standard Thermoplastics: Data & Charts
- Base petrochemicals, aromatics and feedstocks in January 2012
- Standard Thermoplastics in January 2012
- Engineering Thermoplastics in January 2012
- PET in January 2012
- Polyurethane feedstocks in January 2012
- Composites/GRP in January 2012
- Standard Recyclate in January 2012
- Engineering Recyclate in January 2012