The European polyethylene value chain has begun or is considering cutting operating rates as end-user demand slows against a backdrop of economic uncertainty, sources said.
Many participants in the value chain -- from the steam crackers to the PE producer to the converters -- said they were either considering or already operating at reduced rates as margins were hit.
Ethylene produced from steam crackers is used to produce low density PE, linear low density PE and high density PE. PE is a raw material for plastic converters who use it for end-user applications like packaging.
Spot cracker margins were still in the red, assessed at minus Eur231/mt Wednesday. Contract cracker margins, were at Eur15/mt Wednesday, their lowest since July 28 when they hit a low so far in 2011 of Eur2/mt. Steam crackers were heard to have reduced operating rates further in September, from the 80-85% reported in August.
PE producers said profitability was low and that they were looking at trimming operating rates to manage inventories. A producer reported that industry data showed that LDPE inventories in Europe were rising. European LDPE and HDPE producers were exploring export options in dollar-denominated economies to take advantage of a falling euro.
Further downstream, converters said that due to weak end-user demand they were operating at lower inventories and some were reported to be manufacturing below budget. "We are now running at two weeks of inventory opposed to the usual three weeks of inventory," a converter said.
In end-user markets of LLDPE and LDPE, the slowdown in the industrial market was stronger, while hygiene, medical, food and specialty markets were "reasonably steady," sources said. Films for industrial applications and surface protection were particularly weak, sources added. Lower-than-expected demand in the beverage market had also hit the collation shrink film segment, sources said. "The commodity market is dead, whereas some specialties are still holding," a converter said.
In the HDPE finished good markets, injection-molding markets of crates and boxes, waste bins, and caps and closures, along with blowmolding markets of milk bottles, were faring better than the HDPE film and HDPE pipe markets.
HDPE film was seen weak, as the demand for carrier bags has diminished due to environmental pressures, which have led to regulations and incentives for consumers to reuse bags.
