Supply challenges and logistical issues will support European PE prices

The recent softening trend in the European PE market appears to be stalling, with production challenges and logistical issues supporting prices
.

European PE prices hit an all-time high in early 2021 after freezing weather in the U.
S.
reduced massive ethylene and PE capacity
.

The shutdowns in Europe have exacerbated the ensuing tight supply situation, with the PE market facing significant supply constraints
.

However, prices began to soften in the second quarter as supply slowed, and buyers were more cautious after exposure to record high market capitalizations
.

Some market sources said they expected the downward trend in prices to gain momentum during the seasonally quiet summer holidays, but shipping delays and supply challenges in August kept sentiment firmer than expected
.

The impact of shipping on arbitrage

Market participants had expected imports from Asia and the Middle East to enter the European market in June and July, easing supply
.
However, shipping delays and the lack of containers have greatly increased delivery times, resulting in fewer imports entering the market
.

Traders are finding it increasingly difficult to do business amid these delays as delivery dates are not guaranteed and shipping costs skyrocket
.
This means that there are few competitive import offers in the market, leaving buyers with fewer choices
.

"The lack of arbitrage means producers have a choice of markets and logistics will prevent prices from collapsing
.
Prices could be very firm in September,
" a trader said
.

Traders expect shipping issues to remain a fixture in the market for at least the rest of 2021
.

Trucking has also been difficult this year, with a shortage of truck drivers in Europe following the coronavirus outbreak
.

Britain is one of the hardest-hit regions, with truck drivers reluctant to make deliveries to the UK in case they are stuck in long port queues after Brexit
.

During August, more logistical problems are likely to arise as a strike by German train drivers begins
.
Members of the German locomotive union have voted to take strike action on passenger, freight and infrastructure from Aug.
10 to 13 due to a pension dispute
.

At the same time, U.
S.
exports to Europe are minimal, and producers in the region are focusing supply primarily on local demand
.

The lack of imports means supplies are not as healthy as expected
.
With competitive import offers disappearing from the market, buyers may have to return to the spot market for domestic material
.

SABIC force majeure

Flooding damaged pipelines at SABIC's Geleen plant in the Netherlands, leading the company to declare force majeure on PE at its Geleen and Gelsenkirchen plants in late July, with participants expecting tighter market conditions as a result
.

However, the calmer conditions of the summer have offset the supply challenges so far, with players not yet noticing a sharp tightening in supply, with one processor saying its orders for August had been confirmed
.

Still, participants are concerned about the supply situation at the end of August and September, as most merchants will return to the market after the summer break
.
This may be the moment when the market feels the full impact of SABIC's force majeure and ongoing complex logistics
.

"People didn't want to buy before, especially LDPE
.
They thought there would be lower prices in September,
" a trader said, adding that the market's inventory levels were low
.

"Southern European markets are on holiday, so it's easy
.
But when they come back, what will be the supply situation at the end of August? Will it affect September? To be safe, people will buy more than they need
.
" One a source said
.