European PE buyers balk as prices remain at record levels

London — European polyethylene converters are refusing to buy additional stocks on an expectation of reduced demand in April, while additional global supply emerged as US Gulf Coast production facilities ramped up production, potentially bringing an anticipated price correction forward, according to market sources.

Although spot prices for low density PE -- the PE resin grade in the greatest demand during lockdown and with the highest margin -- remained at record highs, some sources this week said they did not want to buy at the top of the market upcycle for fear that prices would correct down much sooner than the previous expectation of May.

Spot LDPE was assessed at Eur1,970/mt FD NWE March 23, unchanged from March 22, according to S&P Global Platts data, reaching all-time highs on the back of reduced global supply and fewer exports due to lockdowns in the US.

One converter stopped purchasing spot volumes, suggesting that stocks in hand were sufficient for April.

"Consumers are concerned about price," the converter said. "Prices are too high."

"No one knows what will happen as soon as the transport with containers and the big exports start to return. The market is quiet, very calm. A lot of customers they say they prefer to wait," the converter said. "Producers will find some surprise in April as demand will not be as they expected."

Sources pointed to April being a short trading month given the Easter holiday, with several holidays ahead in April, May and in June. This is despite a heavier-than-planned cracker turnaround season, which is due to start in April and could lead to further supply interruptions.

"People have bought a lot in December, January and even in March if they could. We have good stock," the converter said. "It's the first time in years that they [producers] have arrived at these prices. The decrease will not be soft. It will be quick."

Most US Gulf Coast petrochemical plants that were shut when sustained sub-freezing temperatures hit the region in mid-February have resumed operations or expect to restart by the end of March.

ExxonMobil Chemical Co. has restored all of its US Gulf Coast production capacities, the company said in a letter to customers March 22 seen by Platts. EMCC plants include locations in Baton Rouge, Louisiana, and Beaumont and Mont Belvieu, Texas.

Maxing out credit lines

In contrast with last year, PE volumes purchased so far are less than in the previous 12 months but at extraordinarily high prices, with banks fearing prices will soon correct quickly, the converter said.

Converters have been under such intense cost pressures, since they face cost increases immediately with no certainty that they will be able to pass on those increases down the supply chain. This, they say, has concerned banks and lenders that facilitate the credit lines upon which buyers and traders depend on to secure commodity plastics.

"All the customers have reached the maximum of their credit lines, and now if they want to buy, they need the cash," the converter said. "The banks are [asking] a lot of questions."

Another trader agreed that credit has become a significant issue in the ability to trade material, pointing to a "commodities super-cycle,"' he said that some in the market pointed to a possibility "where pricing will keep getting stronger."

However, he concurred that credit was becoming an obstacle and a major problem in trading and maintaining operations.

"I have had conversations with my credit managers and said the same. They have queried, they asked questions [of its trading operations]," the trader said.

Prices plateau in Turkey

In the Turkish markets, prices for PE grades had already plateaued in early March and began to retreat as buyers fought back against rising offer levels amid lethargic local demand.

Downstream consumers were heard to be lowering run rates rather than purchase at close to multi-year highs, with downstream end users heard to be resisting price rises imposed by converters.

"Clients do not accept the current prices," a trader said.

The situation was not helped by a volatile macroeconomic and currency picture, which has sent many buyers to the sidelines and left their ability to compete for material on the international market diminished.

A sharp fall in the value of the lira against the dollar this week following the March 20 sacking of the Turkish central bank governor just three months into his term is unlikely to help the situation. Converters are particularly affected, as they buy in dollars or euros and sell finished products domestically in lira.

Platts assessed the CFR Turkey LLDPE spot price at $1,560/mt March 17, down from a six-year high of $1,600/mt in early March.

"On quoted prices, we see some slight downward changes on the offers, but the spot is moving down faster," a trader said.