Weak Europe PE demand raises concerns for rest of 2011

LONDON-Polyethylene (PE) demand in Europe is weak and while cutbacks are being implemented across the board most market sources see little chance of an upturn for the remainder of 2011, several said on Monday.

A series of cutbacks at the cracker and polymer level has been in place for some weeks, but some sources are now questioning whether production really was reduced enough, as supply still outstrips demand, particularly low density polyethylene (LDPE) and linear low density polyethylene (LLDPE).

Crackers are now estimated to be running at 70-80% of capacity, and more cutbacks are planned and being implemented at the PE level.

“What’s different in November compared to October is that assets are now down,” said a producer.

Another said: “We will be announcing our cutback programme in the coming days.”

Dow has cut production at several LDPE sites throughout Europe and reduced output at solution sites. It has also taken the unexpected step of targeting a €100/tonne ($141/tonne) increase for November PE.

Most PE sources view this as strange, given that earlier announced hikes for October were abandoned within days of being announced, but the company says this move is being supported by heavy cutbacks.

Several producers said they were cutting back output at several sites but are not prepared to give details at present.

“I’m not in a hurry to run my plants,” said a third PE producer. “There is just too much material around at the moment. We are applying drastic measures.”

A fourth producer said: “Demand in the second half of October is awful. There is just no confidence in the market. Everybody is running stocks down low.”

In early October, some large LDPE spot deals had been offered from selected producers to selected buyers at €1,050/tonne FD (free delivered) NWE (northwest Europe). At the time this was around €70-80/tonne below what was considered to be the market price, but since then ideas have been falling.

The €20/tonne drop in the November ethylene contract price, to €1,095/tonne FD NWE, has also added more downward pressure on pricing, despite poor margins at non-integrated producers.

“Everybody is considering the cost of production and not the value,” said one of the PE producers, bemoaning the fate of PE pricing.

Polimeri Europa’s 200,000 tonne/year LDPE plant at Dunkirk in France is down because of an incident at the cracker a week ago, but the company can still serve its customers and there has been little reaction to this in the market.

In the LLDPE market, the line between grades has become blurred as some converters shift volumes to the producer who has given them the best year-end volume rebate, leaving others with surplus material to place.

Metallocene C6 LLDPE (MLLDPE) sellers are fighting for market share by lowering prices, which in turn affects C6 and C8 LLDPE grades, as C8 sellers compete with MLLDPE pricing, leaving C6 LLDPE to be offered at levels barely above C4 LLDPE pricing. C4 LLDPE is currently trading around the same level as LDPE, and sometimes slightly above.

“The LLDPE market is a dog-fight,” commented one large buyer.

High density polyethylene (HDPE) non-film grades are faring better. Earlier in 2011, HDPE pricing had been in the doldrums and was considered the poor relation of the PE family.

“We can say that HDPE is not worse than before,” said one of the PE producers.

Another HDPE producer put if differently:

“HDPE is like the tortoise in the tortoise and the hare fable. It goes along slowly and nicely, winning in the end.”

Few players expect volumes to improve in 2011, in spite of cutbacks in production. The debt crisis in Europe is having an impact on confidence, and the recent agreement over Greek debt, and fears over other economies which are floundering, are likely to keep volumes low for the rest of the year.

PE is used in packaging and agricultural sectors.

($1 = €0.71)