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Rapid rises in energy costs increase pressure on European PE market: producers

Highlights

Producers look to pass on costs

Buyers show resistance to increases

Soaring energy costs are a growing concern for producers in the European polyethylene market, with producers looking to pass on rising energy costs.

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Natural gas prices in Europe have jumped in recent weeks amid lower supplies from Russia. The Dutch TTF day-ahead gas price was assessed at Eur92.70/MWh on Oct. 7, while the UK NBP equivalent was valued at 216 pence/therm. Both spot prices have receded from record highs set earlier in the week.

"There's an energy crisis forming, which means we either stop production or push surcharge prices through," a producer said. "More energy intensive grades will be underwater – particularly LDPE (low-density polyethylene), which is an energy intensive grade and attracts more C02 penalties. Do we really want to produce unless we can get a surcharge tomorrow?"

Another producer was also feeling increasing pressure from the steep climb in energy costs.

"I don't think we would've predicted this increase in energy costs," the second producer said. "It's more than tripling the cost of our utilities. For our industries, especially LDPE, it is really hurting us."

Contract discussions were ongoing within the European polyethylene market, with producers looking to achieve increases versus September levels.

"We can reflect the increase we've seen so far but they're going up weekly, so prices are out of date," the first producer said. "We will have to put through sizeable increases on top of the monomer."

Converters were said to be showing resistance to price increases in October, with some adopting cautious buying attitudes and relying on their stocks despite a slower flow of imports into the market and the growing concern over rising energy costs.

"There's no interest in buying extra unless you feel like you don't have any resin," one converter said. "The situation is way better than earlier in the year."

Polyethylene prices remain at record highs, with spot low-density polyethylene prices indicated at Eur1,750/mt FD NWE on Oct. 7, compared with prices of Eur800/mt FD NWE in May 2020, with 2021 bringing the highest LDPE prices for at least five years, according to S&P Global Platts data.

One converter said it would look to mitigate any increases and added that "clearly this is a bad trend in energy costs."

Other market players were waiting to see how the higher energy costs would impact the polyethylene market, with not immediate shift in price trends noted so far this week.

"I see that energy prices are increasing very fast but there's no real information on how it will affect polymer units," one trader said. "We're heading for the perfect storm again."