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Plastics futures prices expected to bounce back to physical levels

October 26, 2006

1 Min Read
Plastics futures prices expected to bounce back to physical levels

A price easing across most energy markets has resulted in polyolefin’s physical prices declining sharply across most physical trading regions, says market analyst Sebastian Castelli, Société Générale Cross Asset Research (London). Oil, its derivatives, and natural gas prices have decreased abruptly over the last few weeks reaching the lowest levels of the year. Castelli says plastics future prices as listed on the London Metal Exchange (LME; London) have over-reacted to the energy trend and registered the largest drop.

In Europe, where olefins are short due to a heavy maintenance season that has cut almost 15% of capacity, there is still some reluctance of prices to decrease in the same proportion as registered in oil or naphtha prices, he says. Some producers may experience a squeeze in their margins if plastics prices continue to ease. This is the only support for current high price levels in Europe as demand is expected to pick up at lower levels.

As plastics markets in general continue to be tight and heavily dependent on feedstock behavior, with no further large downward trends expected, Castelli says his company believes that LME futures prices will bounce back, correcting the quick decrease registered in the last few weeks. European physical price levels can remain stable if cautious processors cannot wait until the end of the month when crackers’ supply is expected to increase. LME inventories for LLDPE butene have declined during the last few weeks, taking advantage of arbitrage opportunities opened in Europe as the LME price level was below marginal spot/export prices for the region. Société Générale expects U.S. and Asian physical prices to decrease in the short term until reaching a level where demand should pick up.—Robert Colvin; [email protected]

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