Supply challenges, logistics set to support European PE market

A recent softer trend in the European polyethylene market looks as though it is stalling with production challenges and problematic logistics set to bring support to prices.

European PE prices hit all-time highs earlier in 2021 following freezing temperatures in the US which took out large amounts of ethylene and PE capacity.

Outages in Europe exacerbated the ensuing tighter supply situation, with the PE market experiencing pronounced supply constraints.

However, prices began to soften in the second quarter as supply eased, with buyers more cautious following their exposure to record high market values.

Some market sources said they expected the downtrend in prices to gain momentum during the seasonally quieter summer holiday period, but shipping delays and supply challenges have seen firmer-than-expected sentiment during August.

Shipping impacts arbitrage

Players had anticipated import volumes from Asia and the Middle East would enter the European market during June and July, with supply expected to ease as a result. However, shipping delays and a lack of containers increased delivery times significantly, with fewer import volumes entering the market as a result.

"Imports are not reliable. Traders cannot move stuff. It prevents worldwide arbitrage," a converter said.

Players have found it increasingly difficult to do business amid the delays, with no guarantees on delivery dates and rocketing shipping costs. That has meant there are few competitive import offers in the market, leaving buyers with less choice.

"The lack of arbitrage means producers have the pick of the market and logistics will prevent price collapse. September might be very firm," one trader said.

Players expected shipping issues to remain a fixture in the market for the rest of 2021 at least.

Truck deliveries have also been difficult this year, with Europe seeing a shortage of lorry drivers following the COVID-19 pandemic.

The UK was one of the worst-hit areas, with lorry drivers reluctant to deliver to the country in case they got stuck in long port queues following Brexit.

There could be further logistical issues during August as a train driver strike gets underway in Germany. Members of the German Locomotive Drivers' Union voted for strike action on passenger traffic, freight traffic and infrastructure from Aug. 10-13 because of a dispute over pensions.

Meanwhile, US exports to Europe are minimal, with producers in the region largely focusing their supply on local demand following the freezing temperatures and consequent plant outages seen earlier in the year.

The lack of imports has meant supply is not as healthy as had been expected. Buyers may have to return to the spot market to purchase domestically produced material as competitively priced import offers disappear from the market.

SABIC force majeure

A flood-damaged pipeline at SABIC's Geleen plant in the Netherlands led to the company declaring force majeure on PE from its Geleen and Gelsenkirchen plants late July, with players expecting tighter market conditions as a result.

However, the quieter conditions over the summer period have counterbalanced that supply challenge so far, with players yet to note a significant tightening of availability and a converter saying that its orders for August had been confirmed.

That said, players are concerned about supply conditions come the end of August and September, as most players will have returned to the market following summer holidays. That could be the moment when the market feels the full impact of SABIC's force majeure and ongoing complicated logistics.

"People did not want to buy before, especially LDPE [low-density polyethylene]. They thought there would be lower prices in September," a trader said, adding that stock levels in the market were low.

"Southern Europe is on holiday, so it is relaxed. But when they come back, how will the supply situation be end August? Will it impact September? People are buying more than they need to be on the safe side," a source said.