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European polyethylene market: torn between the Asian bull and American bear

January 26, 2018 (6:29 mins)



The surging prices of polyethylene in Asia are keeping Europe's prices flat despite abundant supplies being available in the market. With US exports widely expected to further increase supply availability in Europe in the coming months, the continents polyethylene prices look set to come under downward pressure. This is despite the price strength in Asia. S&P Global Platts petrochemicals senior price specialist Daved Chohan and polyethylene associate editor Conor Molumby discuss these global factors impacting European prices.


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Download S&P Global Platts: European Petrochemical Outlook H1 2018

Higher crude oil prices and rising imports will be among the key drivers of European petrochemicals in 2018. Producers are braced for upstream cost increases and global competition, while buyers may face a challenging first half of the year as planned outages in the coming months tighten availability before new supply from competing regions arrives on European shores.

This special outlook report takes a look at the themes expected to shape markets in Europe for the year ahead.

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Podcast Transcript


EUROPEAN POLYETHYLENE: TORN BETWEEN THE ASIAN BULL AND THE AMERICAN BEAR PODCAST


DAVED CHOHAN: Welcome to the S&P Global Platts Commodities Spotlight podcast for January 25th, 2018 I’m Daved Cohan senior price specialist in petrochemicals at Platts in London.


Joining me today to discuss the European Polyethylene Market is our associate editor covering ethylene and polyethylene, Conor Molumby.


So Conor, the title of this podcast is: “torn between the Asian bull and the American bear,” why?


CONOR MOLUMBY: Strong demand for polyethylene in Europe is being met by full production runs. In theory therefore, prices should be dropping because most players are talking about stocks being abundant. But of course the prices are flat as we have been reporting in recent weeks.


The reason for this is the strong price momentum in Asia, specifically China in the past 6 months. High density polyethylene film: spot price is up at 1,315 USD/mt in Asia (about 19% higher than its low in the middle of last year).


At the same the price has dropped by 9% in Europe. HDPE film is used for food packaging, plastic bags, bin liners That is putting upward pressure on European prices, despite abundant supplies.


A lot of market players last week said that prices weren’t moving despite decent buying but also good stock levels being available. Where the U.S. comes into this is the expectation in the market that U.S. exports are really going to surge in the coming months and lead to increased supplies being available in Europe.


As we wrote in our outlook for the year based on amongst other things Platts Analytics data, these imports are going to pick up later in the first half of this year as the U.S. gulf recovers from last year’s storms, and new capacity comes online.


DAVED CHOHAN: Where does this leave the European market?


CONOR MOLUMBY: Right now prices are flat. Although supplies are abundant and there is some buying, the sentiment seems to be that the Asian price strength is adding the counter balance to the supplies. In particular it’s the Middle Eastern swing exporters that are looking to Asia instead of Europe because of the price strength.


This means the exports aren’t coming to Europe in quite the same volume. If we look at the most recent import data for the EU which was released by Eurostat last week. Up until the end of November 2017 Polyethylene imports are down 2% in the first eleven months of the year.


Drilling down into HDPE, imports are down 9% compared to the same 11 months in the previous year, and in November itself imports dropped 16% compared to the previous November.


DAVED CHOHAN: Where do things go from here?


CONOR MOLUMBY: In the short term we have the Chinese new-year in the coming weeks which many European market sources who I have talked to expect to impact prices in China. That could see prices come off a little there and Middle Eastern exporters switch their flows back towards Europe. But the Bear for European prices in the title of the podcast is of course the U.S. imports.


The U.S. has added 1.2 million metric tonnes of Linear Low density PE capacity and 1.6 million metric tonnes of High density polyethylene capacity in the last year. Europe has a domestic deficit of both high density and linear low density polyethylene based on Platts Analytics data which also shows production in Europe will be flat in the coming years.


The total deficit in European domestic supply is 1.6-1.7 million metric tonnes of polyethylene. U.S. expansions are growing even more this year and beyond. Over the next ten years the U.S. is expected to have annual surpluses of 4 million and 4.1 million metric tonnes for Linear low and high density polyethylene respectively.


The final destination for that material is going to increasingly become Europe. European traders are already testing this U.S. material and it is said to be of good quality. If, as expected it can compete on price in Europe with their lower production costs compared to Europe, we could be looking at continuous downward pressure on European prices in the second half of this year.


This would likely neutralize the Asian bull, even if, as expected the Chinese economy continues to drive strong demand. The other factor in the wider complex is the recovering price of crude oil which is countered by a trend that is quite quickly turning into legislation to reduce the amount of single use plastic that is being produced.


If as expected plastic bags are going to have to become bio-degradable in the medium term that could really put pressure on high density film polyethylene which is currently used in shopping bags and freezer bags.


DAVED CHOHAN: Thank you Conor. That’s it for today’s podcast which we hope you have found insightful.


For further petrochemicals-related news and analysis, visit us on platts.com/petrochemicals and tweet us at @PlattsPetchems. Thank you.






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