In December 2018, European PE producers successfully resisted the pressure from their customers to pass on the ethylene cost reduction in full. The margin losses suffered in the last few months have been too large for them to factor in the full reduction again.
Although the price cuts were still quite substantial because of the triple-digit cost reduction, the fact that they were finally able to improve their margins did at least put a smile back on producers’ faces. After several weeks of effort, they have managed to limit supply. On the spot markets too, not all of the cost reduction was passed on, and only with some smaller orders has a reduction sometimes been possible.
The ethylene reference for January 2019 was reduced by a further €40 ($46) a tonne due to the continuing weakness in the oil and petrochemical chains. With demand still very sluggish, producers are likely to find it difficult to emerge as winners from the margin poker game that is usually so popular at the beginning of the year. The cost reduction will probably serve as the measure of things.