Polymer prices under pressure from lower costs and weak demand

Standard thermoplastic prices have fallen sharply over the last two months following a downturn in feedstock costs and ongoing demand weakness.

Polyolefin producers attempted to limit price discounts to below the reduction in monomer cost in order to improve their flagging margins, but their efforts were largely unsuccessful.

LDPE prices have tumbled by €170/tonne over the last two months compared to a reduction of €90/tonne for the ethylene contract price. LLDPE prices, where supply is somewhat tighter, fell by €110/tonne while HDPE prices fell by €110-120/tonne during the same period.

In May and June, PP prices fell by a combined total of €120-140/tonne against a reduction of €95/tonne for the propylene contract price. Copolymer injection material saw the largest price reduction due to very weak order intake.

PVC prices have fallen by significantly more than the proportionate impact of lower ethylene on the PVC cost base. Base PVC prices have fallen by €150/tonne during the last two months compared to a proportionate €45/tonne reduction in ethylene costs. PVC is under pressure from low demand, a mounting supply surplus and competition from cheap imports.

In May, general-purpose polystyrene (GPPS) prices increased by €10-15/tonne following a surge in benzene costs, which led to a rise of €55/tonne for the styrene monomer reference price. In June, GPPS prices closely matched the €127/tonne reduction for the styrene monomer reference price.

PET prices remain under pressure as a result of lower-than-expected demand, growing price competitiveness from Asian imports and falling feedstock prices.

Supply lengthens
Material availability is lengthening despite production plants continuing to operate at reduced rates. A supply surplus is developing across most product sectors. The lower production rates from local producers are being countered by imported material, particularly for PET, PP, PVC and LLDPE.

The latest supply-related developments are summarised below;

• Spanish supplier Repsol shut down a polypropylene plant in Tarragona, Spain on 13 June due to “unforeseen and unavoidable technical issues”, and the company has also declared force majeure for the material. No indication has been given on a restart.
• BorsodChem plans to shut down its S-PVC plant in Hungary on 1 July for maintenance with restart scheduled for 1 September.
• There was flare-up activity at BASF SE’s steam cracker in Ludwigshafen, Germany, from 9 June for the following two weeks. The company cited maintenance works as the reason behind the flaring.
• Borealis announced late May a shut down for maintenance at three Austrian PP and PE production lines
• In mid-May, Czech supplier Orlen Unipetrol announced a force majeure for polypropylene from its Litvinov plant following a fire. The earliest production restart is expected in Q3.

Demand subdued
Polymer producers were disappointed when a much hoped for upturn in demand failed to materialise during the last two months. Order activity from converters across all major market sectors including automotive, construction and packaging, remained extremely low due to the overall weakness of the economic situation in Europe. Demand has also been adversely impacted by bank holidays and the start of the summer holiday season. In addition, stocks at converters are on the high side and as a result buyers are only ordering what is absolutely necessary for their immediate production needs.

Outlook
Most polymer classes are expected to see further price reductions by the end of the month due to a growing supply surplus and subdued sales. In July, there is unlikely to be a significant change to the downward price trend.

L/LDPE
In May, L/LDPE producers initially attempted to hold price discounts to the €10/tonne reduction for the ethylene reference price. However, weak demand and ample supply soon put paid to such plans. LDPE prices fell by €70/tonne while LLDPE, where material availability was somewhat tighter, saw prices fall by €40/tonne. A seasonal demand upturn failed to materialise while production was maintained at reduced rates.

L/LDPE prices continued to tumble during the first two weeks in June because of a further reduction in monomer cost and low demand. LDPE prices fell by €100/tonne while LLDPE prices were down by €90/tonne compared to the €80/tonne fall in the cost of ethylene. Supply was more than adequate despite production cutbacks while demand weakness persisted across most end markets. Further price reductions are expected during the remainder of the month.

HDPE
HDPE producers initially tried to restrict price discounts to the €10/tonne fall in the C2 reference price at the beginning of May. However, converters were looking for a bigger price reduction and sellers had to concede much higher discounts as the month progressed. The much hoped for demand upturn didn’t materialise as converters bought just sufficient for their immediate production needs. Producers continued to curb production while imports were readily available.

HDPE prices moved in line with the €80/tonne reduction for the ethylene reference cost during the first two weeks in June. Material availability has been kept under tight control by production cutbacks and a more limited supply of US imports. Demand levels remained weak across most end markets and producers ordered just enough to meet their immediate needs given their high stock levels.

PP
PP sellers conceded price discounts in excess of the €15/tonne reduction for the propylene reference price in early May so as to avoid a build-up of excess stock. PP prices fell between €30-50/tonne during the course of the month. The supply situation improved, despite the reduced production rates. Incoming order activity remained on the low side with few signs of an upturn in sight. Production stoppages due to bank holidays also dampened demand.

PP prices had fallen by slightly more than the €80/tonne reduction for the propylene reference cost by the second week into June. A surplus supply situation had developed as higher imports more than compensated for production cutbacks by local suppliers. Demand remained weak across major markets such as automotive and packaging. Further price concessions are likely during the rest of the month.

PVC
In May, base PVC prices remained under severe pressure because of a developing supply surplus, low demand and competition from cheap imports. Base PVC prices were down by at least €70/tonne during the month as a whole, which was well in excess of the impact of lower ethylene prices on the PVC cost base. An excess supply situation is building, despite the production curbs, due to growing imports.

PVC prices tumbled further during the first two weeks of June because of lower costs and weak demand. Producers hoped to minimise the price reduction to the proportionate impact on the PVC costs from reduced ethylene prices. However, early contract settlements indicated base PVC prices down by twice this amount. Further price reductions are highly likely during the rest of the month because of a growing supply surplus.

PS
In May, PS prices failed to increase in line with the €55/tonne rise for the styrene monomer reference price, increasing by just €15-20/tonne. There was sufficient material available despite the production plants still operating at reduce rates. A much hoped for improvement in demand failed to materialise; many converters held back from making additional purchases as prices were expected to fall in June.

PS prices have indeed fallen during the first two weeks of June following a reduction of €127/tonne for the styrene monomer reference price. General-purpose PS prices are down in line with monomer costs with high-impact PS prices maintaining a surcharge of €90-100/tonne. Demand remained very weak in view of the economic situation. Supply has lengthened despite the reduced plant operating rates. Further downward price pressure is likely during the rets of the month.

PET
In May, a much hoped for upturn in PET prices failed to materialise as a result of the worse than expected weather in mainland Europe which prompted a deterioration in consume sentiment and a reduction in PET demand from the beverage sector^[i]. There was also an unexpected sharp fall for the May paraxylene cost settlement which fell by €105/tonne. Sellers were forced to reduce PET prices by around €70/tonne in order to prevent buyers switching to imported material.

Market expectations for June were for a more stable price trend. However, early indications point to a further sharp reduction for bottle-grade PET prices. Upstream feedstock costs are falling and Asian import prices are now much more competitive with local product. Demand is likely to rise but at a pace far less than would normally be expected.