FocusEurope PP players await C3 settlement

24 September 2008 17:13  [Source: ICIS news]

LONDON (ICIS news)--Europe polypropylene (PP) players are waiting for the fourth-quarter propylene contract to settle in order to give a clear direction to their own market next month, market sources said on Wednesday.


“Order intake this week has been very flat,” said one PP producer. “We are determined not to give away any more than the fourth-quarter monomer decrease for September and quarter four combined.”


Buyers expected to be able to get more decreases in October, after gaining on average €40/tonne ($59/tonne) reduction from August.


Fourth-quarter propylene was still under discussion and while a decrease was widely expected by players, the forecast amount of reduction had now diminished to around €50/tonne, from expectations of a drop of up to €80/tonne only days ago.


Producers reported a tightening propylene situation which influenced sentiment but also the recently concluded fourth-quarter ethylene contract, €108/tonne than the third quarter, at €1,120/tonne FD NWE.


This was higher than many buyers had been excepting and to some extent set the tone for the next propylene contract settlement. 


Low PP spot prices were on offer from European producer sources in September and buyers expected monthly prices to go down further in October, to reach a level more in line with current spot values.


European homopolymer injection grades are available at €1,160/tonne FD NWE, whereas gross monthly prices, subject to a monthly rebate and subsequently an end-of-year volume rebate, are trading close to €1,300/tonne FD NWE.


Inventories with buyers are low, and they reported ample offers of PP in Europe. They argued that a lower propylene contract price in the fourth quarter would lead to more reductions next month.


“If demand comes back significantly in October, we could find ourselves in a situation where we don’t have enough material to fulfil orders,” said the PP producer.


Buyers generally did not expect such a situation to arise and pointed to other regions globally where PP prices had been dropping for several weeks and where material was available in abundance.


New capacity would be on stream in the coming weeks and they felt European PP producers would not want to lose volume.


August demand had been very poor and inventories with some producers had increased due to the unexpectedly low off-take, buyers said.


Year-to-date volumes at the end of July were estimated to be running at minus 4% below 2007 levels.


The big question mark for fourth-quarter PP pricing would ultimately come down to supply and demand, several sources agreed.


“We are hoping that demand will come back in October, once propylene settles and the amount buyers can feasibly target is clearer. Minus 4% could represent destocking, so we could be back in business in the next couple of weeks,” said another producer.


Buyers did not necessarily agree.


“At the current level of price, the market can no longer survive,” said a medium-sized PP buyer. “Credit is stretched to its maximum.”


A propylene settlement was expected imminently.


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


($1 = €0.68)


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By: Linda Naylor
+44 20 8652 3214

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