Upward price trend gathers pace

23 Feb 2010 • by Natalie Aster

Western European buyers of standard thermoplastics faced further substantial price increases in February as producers were determined to cover rises in feedstock costs and recoup flagging profit margins.

PP rockets

Polypropylene prices rocketed in February with producers determined to pass on the U85/tonne increase in the February propylene contract price and improve their margin position. Notations were up by €100/tonne across the board without much discussion.

Supply remains tight with limited availability of propylene and several polymer plants down for maintenance or suffering unplanned outages. Sabic announced force majeure for random copolymer at Geleen, the Netherlands, during the second week of the month, which is likely to continue into March.

Demand started the month slowly but by mid-month was much livelier as converters sought to secure material in view of supply worries and an expectation of a further price rise in March.

Triple-digit increase for L/LDPE

L/LDPE prices soared in February on the back of higher feedstock costs and supply concerns. Producers announced a price target for February of €130/tonne to cover the €70/tonne rise in the C2 contract price and improve their battered margins. While this target was somewhat optimistic, they nevertheless managed price increases of between €80-100/tonne, with notations climbing by the day.

Buyers expressed concerns about reports of production problems, supply shortages and closed order books, and had no option but to accept the high prices being charged if they needed material. There was very limited availability of imports and sellers were exploring export opportunities due to exchange rate movements.

The ethylene contract price for March is not anticipated to rise by as much as in February, but sellers will be seeking to take advantage of current favourable market conditions to raise their prices and improve margins even further.

Supply worries underpin HDPE gains

HDPE prices also registered a sharp upward movement in February spurred on by growing supply tightness. Sellers announced planned price increases of €130/tonne to cover the €70/tonne rise in the February ethylene contract price and bolster their profit margins. All HDPE classes were showing gains of between €80-90/tonne by mid month with the trend firmly upward. Triple-digit rises by the end of the month look to be on the cards.

Material availability is becoming tighter due to planned and unplanned cracker and polymer production shutdowns, and producer stocks are low. There is also a negligible volume of imported material available.

Demand is picking up as converters seek to secure volumes in view of the mounting supply shortages and an expectation of further price increases this month.

PS enjoys a margin boost

Polystyrene producers enjoyed the unusual occurrence of rising prices and profit margins following a fall in feedstock costs last month (February styrene monomer contract price fell by €14/tonne to €1,004/tonne).

The downward readjustment to production capacity through plant closures means that polystyrene supply is now in much better balance with post-recession demand, leaving producers with more leverage to push through price increases. Having announced planned hikes of €50/tonne, producers were settling most deals at €20-30/tonne, which gave them a better margin. There is, however, some way to go before they will be making a reasonable profit.

Producers will be hoping for more of the same in March as styrene monomer is expected to fall again.

Feedstock costs drive PET higher

European PET prices continue to be driven by feedstock cost development now that supply in the sector is better balanced with demand. Over the past twelve months or so, close to 700,000tonnes/year of European PET production capacity has either been shut down temporarily or closed permanently. Buyers have also not had the option to buy imported Asian material due to rising PET prices in the Far East and unfavourable exchange rate movements.

There was much confusion in early February about the course of feedstock costs. An initial paraxylene (PX) contract was settled on the basis of a roll over, and the first MEG contract price was settled up €55/tonne at €840/tonne.

MEG remains under pressure due to cracker outages in Europe and outages at Sabic's Saudi Arabian facility at Yanbu. PET sellers initially targeted price rises of €80/tonne to make up for the lower price gains made in January than they needed to improve margin. By mid-month, however, price gains in the order of €40-50/tonne were being achieved.

Demand was good as those converters who were short on material had to restock.

Solid rise for PVC

PVC producers' margins have deteriorated to such a point that they are determined to stand firm on their policy of attempting to restore a measure of profitability to their business. In February, producers asked for price increases of between €50-75/tonne and expressed an unwillingness to do business at any price below a €50/tonne rise over January levels.

Producers' efforts to raise prices and margins will be assisted by tightening supply. There were fewer volumes of imported US material available and some European suppliers were exporting.

Demand, on the other hand, was better than last February, but was still below the levels that would have been expected prior to the economic crisis. The wintry weather conditions in mainland Europe are also slowing demand for PVC pipes and profiles from the construction sector.

Producers will call for further price increases this month as they maintain that margins are still far from adequate, despite the increases achieved in February.

Source: European Plastics News