Low-priced, plentiful Europe PP fails to lift demand

24 November 2008 16:40  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS news)--The European polypropylene (PP) market is in disarray, with deals done on a case-by-case basis as demand falters and supply remains plentiful in a market expecting further downward pricing movement, sources said on Monday.

“The tanks are full of propylene and the warehouses are full of PP,” said a producer.

Added an Italian processor: “Many converters are already working short time and holidays are being imposed. The automotive and appliance sectors have been particularly hard hit.”

Added another producer: “There is no real market structure at the moment. Business is being done on a daily basis.”

Converters’ inventories were very low and few intended to build up any stock in the short term with values set to fall further.

Monthly PP prices were still holding up compared with spot, but less and less business was being done on a monthly basis as buyers turned to the plummeting spot market.

November monthly gross prices fell around €150/tonne, to €950/tonne FD (free delivered) NWE (northwest Europe), but spot prices crashed €250/tonne, to €700/tonne FD NWE.

Prices were still under downward pressure as the month drew to a close.

First-quarter propylene was expected to fall significantly from its current level of €953/tonne ($1,206/tonne) FD NWE. All players expected a hefty drop next quarter.

Spot monomer was now assessed at €450/tonne CIF (cost, insurance and freight) NWE on thin business.

“Quarter one monomer could fall by €400-500/tonne. Who knows?” said another PP producer. “But we have already discounted this up front. Converters can’t expect another huge drop in January.”

The glimmer of hope that PP producers had glimpsed as Asian prices rose from the bottom was extinguished by the end of the week when propylene prices fell in Asia. Three-year low Brent crude prices also affected the downstream markets adversely.

PP producers now only saw one way out of the current impasse - significant cutbacks in production.

“We are already running at 75% of capacity but we will be taking some tough decisions in the coming days as to which cracker to cut,” said a major PP producer.

Other producers were also considering cutbacks, with some producers already preparing to take the drastic step of bringing crackers to a halt due to the poor demand in downstream markets.

Most crackers were being cut mainly because of the poor polyethylene (PE) situation, but propylene would also be affected.

One major PP producer even envisaged a scenario where PP prices could rise in January as availability would have been reduced by cutbacks. This was not a view shared by most of the market, however.

“Demand is so poor that I can’t see any upturn before the end of quarter one at the earliest,” said a distributor.

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

($1 = €0.79)

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By: Linda Naylor
+44 20 8652 3214

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