Since the beginning of the new year, producers have been relentlessly trying to reverse the price trend and the associated deterioration of margins that began in the second half of last year. In the first two weeks, however, as demand was relatively slack, it became obvious that initiatives to limit supply by cutting production would not immediately achieve the desired effect – see the trend report at Plasteurope.com of 13.01.2012.
Early warnings of severe increases in feedstock costs in February emerged around mid-month and helped producers in their drive to crank up demand. All signs pointed to a EUR 100/t leap in the cost of ethylene despite the fact that at the end of January crude oil was only around EUR 20/t higher than at the end of December and the naphtha rise of slightly more than EUR 40/t over the same period had already been factored into January's C2 contract. In the fourth calendar week, the February contract for C2 was indeed fixed EUR 99/t higher than in January, and for C3 rose by EUR 90/t – at first glance a clear margin improvement for cracker operators.
In reaction, polyolefin producers promptly closed their order books for January, so that converters had no choice but to buy at February prices. Large retroactive PE buyers had to swallow increases of as much as EUR 70/t. To those who balked, the producers pointed out that as exchange rates were in their favour, they could just as well export. Unsurprisingly, demand picked up from mid-month. Fearing further price increases, whoever could replenish stocks did. Although the consumer markets ordered fairly briskly, the level of business was nothing to get excited about. With the building sector in hibernation, demand for PVC and EPS also was flat.
Overall, petrochemical prices are clearly on the rise. The February contracts for ethylene and propylene were up by a nearly triple-digit figure. Shortly before press time, reports said the styrene monomer reference price was agreed EUR 120/t higher. With precursor benzene up EUR 117/t, a rise of at least EUR 100/t had been expected. Similar increases are expected for paraxylene (PX). Against this background, some polymer producers are calling for hikes of up to EUR 150/t. With output already adjusted, the success of the planned hikes will depend on the development of demand this month.
As polymer prices soar on the back of rising costs, converters are likely to hold back on buying wherever possible. PE producers are casting a particularly watchful eye on China to see whether business picks up again after the lunar New Year. Here in Europe it can be assumed that polyolefin and PS producers will aim to pass on their higher costs this month, with success, again, depending on development of demand. Preparations for the building season could boost PVC and EPS, two polymer groups in which producers sorely need margin improvement.
At Ducor Petrochemicals (formerly Domo), the PP plants at Rozenburg / The Netherlands will be shut completely for up to four weeks in late May and early June due to a technical inspection.
The situation for individual polymers in January 2012 was as follows (research completed in the 5th calender week):
At the beginning of the month, producers were mostly able to pass on January's EUR 40/t increase in the cost of ethylene. This rise, however, still left them short of the hoped-for margin turnaround. They had been seeking hikes of up to EUR 120/t. At mid-month, persistent rumours of a triple-digit increase in the cost of C2 in February came to their aid. By closing their order books, they slammed the door on any pre-buying plans converters may have indulged. Bolstered by the attractive arbitrage window for exports, producers inevitably convinced even the most intractable contract buyers of the need to raise margins. Averaging EUR 10-30/t, the improvements were not as big as originally hoped, but the trend had at least been turned around. With the prospect of substantial cost increases on the horizon, spot prices rose by EUR 80-100/t to around EUR 1,200/t.
Supply: Balanced. Steps taken by producers to trim production in Q4 began to take effect in January. The carefully planned output level was sufficient to enable buyers to reorder at the beginning of the year, but was not enough, for example, to cope with the increasing pre-buying activities. The force majeure at LyondellBasell in Wesseling / Germany did not exactly help. Generally speaking, sellers were able to do no more than supply the previously forecast January volumes.
Demand: Normal to good. After starting normally, the PE market was cast into disarray as news spread of massive cost increases to come in February. Anyone who could, sought to stock up sufficient material to last through the upcoming high-price phase. Apparently unimpressed by the unexpected development, the end-markets continued ordering robustly.
Outlook for February: As expected, the ethylene contract reference price for February rose by a massive EUR 99/t in the penultimate week of January. Refiners’ argument that an increase of this magnitude was needed to cover the rises in the cost of naphtha did not seem to hold water. At the end of January, naphtha was priced only about EUR 40/t above the end of December, and that was accounted for in January's ethylene contract. The rise will serve to improve the margins of the cracker operators. It is somewhat puzzling that PE producers agreed to this massive increase in their key feedstock. Supply seems to be well-balanced. Whether the export window will remain open for much longer is impossible to say. Demand is as quiet as usual for the season. In view of the projected EUR 150/t rise in LDPE prices, many converters have said they will definitely put a hold on orders wherever possible. The likelihood is that there will be a tough battle of nerves in February to see who can hold out the longest. The outcome is anything but certain.
The cost of ethylene (C2) rose by EUR 40/t in January to EUR 1,120/t, and LLDPE producers, hard pressed by the severe margin erosion of earlier months, called for significant price increases of up to EUR 120/t. At the beginning of January, medium-sized accounts paid no more than the monomer increase but as the month progressed, indications mounted that ethylene would experience a triple-digit jump in February. Producers responded immediately by trimming orders in line with the previously submitted forecasts. Increasingly, buyers were allocated material based on their willingness to accept a price rise that included a certain margin component. As a result of this tougher approach, the lower end of the higher-grade LLDPE (C6/C8) range climbed by EUR 60/t. The average increase of EUR 50/t for C4-based standard material also netted producers a small margin improvement. Spot prices for the basic standard material rose above the monomer line during the course of the month, climbing by EUR 50-100/t.
Supply: Balanced. Initial demand was driven by the usual stock-replenishing at the beginning of the year. After that, buyers focused on securing enough polymer to see them through the looming high-price period. The problem was that there was not enough material to go round, either of the standard or higher-quality grades. European producers continued to control supply. Even those selling Middle East material generally had around 20% less material at their disposal.
Demand: Normal to good. As expected, business was lively at the beginning of the month as converters who had run down inventories began restocking. Towards mid-month, the prospect of massive feedstock hikes led producers to immediately close their books to stifle any attempts at pre-buying.
Outlook for February: Intent on restoring their margins, producers have announced hikes of up to EUR 150/t. This is intended to cover not only the EUR 99/t increase in the cost of ethylene. It would also include a generous margin improvement. There is no sign that supply will improve in the near future, either from European facilities or from Middle East sources. Even Mexican producers are declining new business, arguing strong captive requirements. Converters' reticence to buy because of the high prices will inevitably dampen the chances that increases will go through in full, but as the agricultural sector awakens from its long winter’s nap, producers will surely not be willing to release material without a margin component of some dimension.
The EUR 40/t increase in January's ethylene contract triggered announcements of polymer price increases ranging up to EUR 120/t. Producers made no secret of their intention to improve margins. In early January, they failed even to factor in the full cost increase, but at mid-month, hair-raising reports of massive cost increases in store for February began to make the rounds. Boosted by this strong tailwind, producers found it much easier to pull very low price levels up to par and win at least small margin increases for regular orders. Producers of injection moulding grades had the most difficulty; most orders in this segment were billed at little more than the cost increase. Suppliers of the low-priced blown film grades fared best, netting increases of EUR 60/t.
Supply: Balanced to long (blow moulding), balanced (blown film, injection moulding). For HDPE, as well as the other PE types, production cuts in Q4 also had an impact, but it was not as great as for the LDPE grades. Import activity was slow, especially from the Middle East and South America. At mid-month, many HDPE producers also deflected orders, possibly to prevent speculative pre-buying.
Demand: Normal (blow moulding), normal to good (blown film, injection moulding). Converters began the year by replenishing depleted stocks, but when it became increasingly obvious that prices would rise considerably in February, they turned their attention to pre-buying. From around 20 January, however, producers began refusing orders.
Outlook for February: As had been feared, the February ethylene contract, relatively early, soared by EUR 99/t. Polymer producers, integrated or not, quickly announced increases of up to EUR 150/t. Supply currently seems adequate to meet the normal demand. What is missing is the usual import inflow. Producers’ aggressive approach is causing considerable resentment among converters. Speaking to Plasteurope.com, some said they had no qualms about staging a boycott. In any case, they will refuse to buy more than they immediately need, while at the same time intensifying their search for alternatives. It is as yet uncertain whether producers’ battle cry will drown out converters' fighting talk. The shortest month of the year could this time turn out to be a very long one for many players.
The new year had barely started when one EVA producer rushed to announce price hikes for 1 February. The first few orders were filled at a rise of EUR 40/t, reflecting the higher cost of ethylene (C2). The increases flattened later in the month before the significant rise in February's ethylene contract led to a more determined effort by producers to lift prices at the bottom end of the scale. In the end, the lower end of the range rose by EUR 20/t as buyers paying lower prices were pulled up.
Supply: Balanced to long. At the beginning of January, as expected, producers had no problem supplying the enhanced demand after the end-of-year clear-out. Later, as concern over the impending feedstock price increases mounted, ordering picked up. Most producers could nevertheless supply without major delays.
Demand: Normal. After the normal refilling early on, order activity in the laminating segment increased considerably in the second half of the month.
Outlook for February: Soon after one producer kicked off the new year by announcing an EUR 80/t increase for 1 February, a globally active European manufacturer of vinyl acetate monomer (VAM) announced a rise of EUR 50/t from 15 January. As ethylene will cost EUR 99/t more in February than it did in January and the Q1 VAM contract will certainly be fixed higher, EVA producers’ hikes will only cover the actual increase in the cost mix if VAM rolls over. Other players have already told Plasteurope.com they will seek hikes, although this may not bring the needed relief as business remains relatively slack. With supply basically normal, orders from the traditional segments are unlikely to generate any major upswing. Thus producers may manage to pass on only part of their increased costs.
The weak euro put pressure on dollar-based purchases of naphtha, the most widely used European precursor for ethylene (C2) and propylene (C3). As a result, the price of C3 rose by EUR 20/t to EUR 1,015/t in January. Producers wanted to leverage the monomer turnaround to restore margins. With calls for hikes of EUR 100/t, they aimed high, but on average netted a rise of only EUR 40/t. This still meant an improvement to margins, albeit smaller than hoped. There were reports of increases of up to EUR 70/t for some buyers and products. Where PP buyers were still paying the very low prices of Q4, they even had to fork out the full EUR 100/t. The European spot market clawed its way back up from the December low, seeing increases of EUR 60-80/t to settle at EUR 1,150-1,200/t.
Supply: Balanced. The year started on a lively note as converters restocked. Later, three producers announced at least temporary supply restrictions for C3 or reported disruptions to PP production. In addition, strikes in Italy delayed deliveries. However, there were no major bottlenecks, at least for standard material. If one producer could not supply, another could.
Demand: Normal to good. At the beginning of the month, the action was dominated as expected by call-offs to replenish inventories. Then, when news hit customers later in the month that there would be a "gigantic leap" in the price of the monomer in February, producers quashed any ambitions converters may have had of securing ample supplies by refusing to accept any more orders.
Outlook for February: Even before the announcement of the EUR 90/t rise in February's propylene (C3) contract, PP producers had prepared their customers for triple-digit price hikes. With margin improvements in January little more than mediocre, producers decided to make short shrift of it and raise February prices by one and a half times the cost increase. What’s surprising is that a mere EUR 40/t rise in January prices could trigger such a hefty rise for C3 in February. Converters with whom Plasteurope.com spoke were sceptical about the projected price increase. Some said they still regularly receive cheaper offers for standard PP from the Middle East or eastern Europe, and if necessary would take advantage of these. One player expected production to be cut because of the debt crisis in southern Europe. Doubts were also expressed as to whether the arbitrage window for exports, often quoted by suppliers as an alternative, will be open much longer. With the Chinese New Year now over, the picture should become clearer. Overall, producers are likely to put up a solid front and insist on factoring in their increased costs even if a surplus should materialise.
The market leader got straight down to business early in the new year, announcing a hike of EUR 60/t. Even for large orders of S-PVC pipe material and higher-quality grades, buyers had to fork out EUR 25/t more than in December. Some customers paying extremely low prices were forced to cough up the full EUR 60/t increase. In view of the proportionate EUR 20/t increase in the cost of ethylene (C2), other producers felt that an increase of EUR 50/t was more appropriate. The average rise by the end of January, both for pipe and higher-grade material, was around EUR 15/t, although the market as a whole saw price increases range from little more than a rollover to EUR 25/t.
Supply: Balanced. In view of the conservative demand forecasts at home, some PVC producers diverted material to exports. However, when business in western Europe suddenly picked up at mid-month, the remaining producers were not always able to cope. The situation was exacerbated when production at Ercros in Spain was shut down for several days due to technical problems. This meant that demand could not always be met immediately.
Demand: Normal to good. The normal stock-replenishing activities at the year’s kick-off were followed by a spell of rather flat ordering. But when soon after mid-month it became abundantly clear that the cost of ethylene would take an enormous leap, the market leader quickly announced a triple-digit increase for February. This touched off a round of pre-buying.
Outlook for February: The hefty EUR 99/t rise in February's ethylene contract has put further pressure on producers’ margins. In addition to recouping the proportionate cost increase of EUR 50/t, they will try to claw back some of the margins lost last year. Most have therefore targeted a polymer price rise of around EUR 100/t, although some have reduced this to EUR 80/t. Due to the off-season in the building industry, PVC output will still be in winter mode this month. While some producers continue to fill export orders, others have put customers on allocation.
Buyers of rigid PVC have complained that producers are intentionally keeping volumes tight. Because there is virtually no snow anywhere in northwestern Europe, builders are still able to install windows. They have a large order backlog but the tightening strategy is making life very difficult. Converters working with plasticised PVC are more relaxed. Sealing sheet manufacturers do not expect the building industry to kick off until after Easter, so they intend to keep purchases to a minimum as long as prices remain high. Even after their successful attempt to at last turn prices around following a seven-month slide, producers are very much in a fighting mood. Nevertheless, they will not find it easy to raise notations by more than the cost increase.
After the January contract reference price for styrene monomer (SM) was settled EUR 120/t higher, PS producers called for hikes of EUR 145/t, citing the need to improve their margins that had been on a long downhill course since September. In the first third of January, medium-sized accounts had no choice but to fork over producers’ entire cost rise, but the large food packagers shaved some of this off the top. Other packagers were able to brake the hike just below the triple-digit range. The Plasteurope.com range for GPPS rose by EUR 105/t. Recovering from its nosedive earlier, butadiene made slight gains of EUR 50/t in January. However, the premium for HIPS remained unchanged at EUR 120/t. Buyers of HIPS who did not pay the premium had to bear the burden, at least. Many purchases of thermoforming film and sheet as well as injection moulding grades faced hikes of up to EUR 130/t.
Supply: Balanced. The first half of January was marked by inventory refilling as expected. At the same time, expectations of a further price wave kept ordering buoyant. Producers closed their order books earlier than usual.
Demand: Normal to good. In the first half of the month food packagers’ order volume improved considerably. In anticipation of a price rally, many converters had ordered early. Those who had completely run down inventories at the end of 2011 went on a buyer spree, but their orders were not always filled.
Outlook for February: Notations for all PS starting materials rose further in February. The key aromatic benzene added a hefty EUR 117/t to the EUR 192/t gain it made in January. Ethylene added EUR 99/t, more than double the EUR 40/t upturn it saw a month earlier. Producers already had plans in the drawer for hikes of EUR 150/t, and as more and more jumped on the bandwagon, the increases quickly rose to EUR 200/t. At least those converters who had already stocked up were rather relaxed about the situation. Rather than anticipate further rises they expect the price bubble to burst sooner or later. The production cuts undertaken in Q4 have been cancelled and supply moved back into balance. With prices this high, converters will order only what they cannot do without. At any rate, they will at least have to cough up producers’ additional costs. As March approaches, however, the high price wave may have dissipated.
The January contract reference price for styrene monomer (SM) rose by EUR 120/t, but EPS producers sought hikes of only EUR 100/t for insulation as well as packaging grades. The bottom end of the insulation grade scale saw the biggest increase, of EUR 80/t, while the upper end added EUR 70/t. The more complex specified packaging grades at the upper end of the Plasteurope.com range gained EUR 80/t, whereby larger accounts at the lower end held the rise to EUR 70/t.
Supply: Balanced. At the start to January, inventory refilling boosted order volume, before at mid-month fresh rumours of price increases triggered a wave of new orders. It didn’t help that one producer of insulation grade was still in maintenance mode, while another faced delivery bottlenecks for packaging grades. Those buying purely for stock generally were not supplied.
Demand: Normal to good. Due to the mild temperatures, block foam manufacturers were able to unload a fair share of finished products, despite it being the off-season. At the same time, the fear of price increases enhanced ordering dynamics. Packaging producers also ordered well, even if some returned later than others from their Christmas holidays. With the exception of the building industry, most other markets began ordering a respectable volume of material for moulded parts.
Outlook for February: The February contract for the key aromatic benzene rose by a further EUR 117/t on top of its January rise of EUR 192/t. The other key component for SM, ethylene, added EUR 99/t to its January increase of EUR 40/t. Producers were reluctant to reveal their price targets, but made no secret of the fact that the triple-digit increases for starting materials would be passed along the chain. The fact that both procurement and production of SM are pretty much on ice should help the initiative succeed. The still robust demand for packaging grades will be supplied through adjusted supply as before.
Many block foam manufacturers pre-bought in December for their needs in the new year and some ordered even more polymer in January. For this reason and because of fears that the usually well frozen winter EPS prices could suddenly heat up again, they are curbing orders. This could interfere with producers’ plans to jack prices up. Packaging producers, who buy consistently throughout the year, will have no chance but to buy at the higher prices, however.
|Prices Standard Thermoplastics (EUR/t)|
|Polymer types||January 2012||December 2011|
|Film (Butene C4)||1,210||-||1,250||1,160||-||1,200|
|Film (Hexene C6)||1,350||-||1,370||1,290||-||1,320|
|Inj. mould. (Butene C4)||1,170||-||1,280||1,210||-||1,240|
|Vinyl acetate 18%||1,755||-||1,795||1,735||-||1,795|
|High impact injection||1,760||-||1,810||1,650||-||1,700|
|High impact film||1,740||-||1,790||1,635||-||1,685|
|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 2012.|
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