Europe-to-Asia PP arb still being exploited

20 June 2008 11:02  [Source: ICIS news]

LONDON (ICIS news)--Opportunities for European polypropylene (PP) producers to export to Asia at better netbacks than in Europe were still available on Friday, sources said.

“We will use the arbitrage window as long as it exists,” said an official at a major European PP producer who reported a heavy upturn in export volumes in June.

PP prices in Asia had risen by more than $200/tonne in many cases over the past month, with the $2,000/tonne CFR barrier breached in southeast Asia in particular, mainly due to planned and unplanned cuts in supply leading tovery tight availability.

Asian prices were up again this week, with homopolymer injection PP trading up by at least 60/tonne, well above $2,000/tonne CFR SE Asia.

Europe PP prices have risen €30/tonne in June, but sources agreed that this was due largely to producers exporting, and some domestic production issues rather than strong demand in Europe.

European prices had been languishing since early 2008, losing €100/tonne ($154/tonne) since the beginning of 2008. Gross homopolymer injection prices fell from their January level of €1,270/tonne FD (free delivered) northwest Europe (NWE), to €1,170/tonne at the end of May.

The fall was due to poor demand in Europe, coupled with increased imports and the lack of ability to export due to the weak dollar.

PP producers were already preparing the European market for hefty hikes in July, with one talking of plus €200/tonne for July business.

Third-quarter propylene was under discussion, and while at least one major buyer was hoping for rather than expecting a rollover, some sellers were looking for hikes of up to €175/tonne on the second-quarter level of €927/tonne.

Increases on propylene were contentious as spot propylene had been languishing well below the contract level for most of the quarter. Buyers argued, however, that increases were based simply on costs rather than supply.

Crude oil remained very strong, at $133/bbl, down from its record high of almost $140/bbl, but still historically high.

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

($1 = €0.65)

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By: Linda Naylor
+44 20 8652 3214

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