Europe PP sellers use export arb for better netback

12 June 2008 16:33  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS news)--European polypropylene (PP) producers are taking advantage of soaring prices in export markets to sell material at better netbacks than in Europe, a couple of producer sources reported on Thursday.

“We have doubled our exports over the past two days and increased our export price,” said one major producer, reporting new export prices at €1,100/tonne ($1,719/tonne) FOB (free on board) Rotterdam.

PP imports into India have touched a new record high of $2,000/tonne CFR India, a 26% or $420/tonne jump from a month earlier, with prices rising by the hour on tight supply and strong demand, suppliers and buyers said. 

An Indian PP converter said it purchased a 300-tonne raffia grade PP cargo at $2,000/tonne from a global supplier, within hours of sealing a deal for a similar sized cargo from a second global supplier at $1,956/tonne.

New offers reached $2,050/tonne CFR by the afternoon.

“You don’t need to look as far as India, Turkey is really booming and we are selling there too,” said the European producer.

There was also evidence that Chinese prices were reaching similar levels to India.

European prices languished around €1,100/tonne FD (free delivered) NWE (northwest Europe) on a net basis, and sources said that it was rare to see European price levels so much below those in Asia.

“We will continue to push more material outside Europe and this could well create a shortfall in the European market,” said another producer. “Converters have to accept that high upstream costs have to be passed on.”

“You can’t expect a cracker operator to provide propylene at a cash loss.”

High oil prices, now consistently above $130/bbl, were putting cracker margins under heavy pressure and some European cracker output was now reduced.

PP prices have been falling consistently in 2008 due to the increased amount of imported product arriving in Europe as the dollar weakened, and failing European demand.

One producer expected slower demand to remain a feature of the European PP market, and said the only way to address that was to either cut back production, or export more.

European volumes were down by just above 2% over 2007, and the European scenario was much changed since last year.

“In 2007 PP demand was good but the cost push this year has been extreme, and we have absorbed it all," the producer source said.

“We have to accept that we won’t reach the margins we had last year, but even at their height, they were not at reinvestment levels.

“We will be out with a massive increase in July,” the producer source continued. “For us, it is game over.”

PP producers in Europe include LyondellBasell, Borealis, Total Petrochemicals, Dow, Repsol and INEOS Polyolefins.

($1 = €0.64)

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By: Linda Naylor
+44 20 8652 3214

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