European PP, PE buyers sideline ahead of further drops in June

Regional polyolefin markets are bracing for another round of steep drops in June, which would mark the third straight month of decreases. Bearish expectations for the imminent contracts and intensifying supply-demand imbalance paved the way for an unpromising outlook despite seasonality.

Downtrend gains speed in May

Prices posted smaller decreases last month, when markets reversed direction after 2 months of hikes. However, the slide deepened in May as unsatisfactory sales amid mounting buying resistance forced sellers to concede to at least 3-digit drops on their spot deals.

Accordingly, the weekly averages for PPH, PPBC and PPRC prices on FD NWE basis have indicated cumulative decreases of 3.6%, 3.8% and 3.7% so far in May. This compares to a monthly decrease of 2%, 1.8% and 1.5% back in April.

As for PE film grades, LDPE, LLDPE and HD film grades posted respectively decreases of 5.5%, 3.5% and 2.3% during May. In April, these grades were down by 4.5%, 1.5% and 2% on the month, respectively.

Is another round of 3-digit drops viable?

Buying resistance was due in part to bearish June expectations that prompt buyers to hunt for bargains at the low ends, rather than resorting any stockpiling, as they believe prices will continue to fall.

Players expect up to 3-digit drops for PP and PE amid ample supplies and potentially lower monomer settlements, for which expectations call for €80-100/ton or up to €120/ton drops. Yet, producers may approach the market with smaller decreases than the monomer outcome in the first place to cushion the bearish momentum.

As a precursor to the forward movement on prices, a few players reported PPH offers as low as €1050/ton FD, 60 days. PE producers are open to negotiate on their prices for June in case of large volumes. Meanwhile, sources highlighted that prices are lower in Southern Europe.

Having staged a weaker performance than other PE grades, LDPE prices may be nearing the bottom in the next couple of months as it lost its premium over others. According to sellers, the bottom may be reached for LDPE at €1000/ton FD level.

Q3 outlook weak on approaching summer holidays

Producers who were hopeful about a demand recovery in May faced a strong sales pressure, while additional drops failed to stimulate buying interest. Demand has been unusually weak for peak buying season, an increasing concern for producers who decided to extend rate cuts until the year-end. There is no point in building stocks as prices wouldn’t rise in June and July, as a buyer put it.

Another pressure point has been the approaching summer season, when converters usually go under turnarounds. Players avoid spending their cash on non-essential products ahead of the summer vacations, with consumption in the automotive, construction, packaging, clothing and furniture sectors slowing down. Several participants reported that they do not expect to see a meaningful recovery during summer months, while they shared their hopes to see a recovery starting from September or early Q4.

Germany slips into recession; rate hikes affect regional markets

Germany has slipped into recession in the first quarter of 2023 following a 0.5% contraction in Q4 2022, with last year’s spiking energy costs impeding spending in Europe’s largest economy. Although Germany’s recession may be short-lived based on the expanding business activity in May, a quick recovery is excluded. This casts a shadow on the sentiment in other countries across the region, while Belgium, France and Italy saw a pickup in economic activity in Q1.

Indeed, the outlook for H2 2023 is negative amid uncertainties about the economic situation and higher interest rates that has put a considerable brake on activity across many sectors. The European Central Bank (ECB) signaled more tightening to get inflation down to its 2% target. The euro area’s average inflation rate accelerated to 7% in April.