FocusEurope polypropylene on hold ahead of C3 settlement

23 September 2009 18:04  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS news)--European polypropylene (PP) buyers are sitting tight in the second half of September as lower spot offers enter the market, while producers wait for the October propylene settlement before indicating next month's business, market sources said on Wednesday.

“It’s going down,” said a medium-sized PP buyer in the commodity market. “Well, it’s not actually going down, but it will go down.”

The buyer paid a hefty hike for the small quantities of material he had bought directly from a European producer earlier in September, but reported increased amounts of spot offers for the second half of the month.

“I can feel the nervousness and the restlessness in the market. Traders are looking to have zero stock at the end of the month, and they are offering at lower prices,” added the buyer.

Buyers expected the market to ease after a serious hike in September which lifted European PP prices by €90-100/tonne ($132-147/tonne). Homopolymer injection prices traded above €1,000/tonne FD (free delivered) NWE (northwest Europe).

Net prices have now eased below €950/tonne FD, but these offers came only from traders, not producers.

“They (producers) will hold out as long as possible, that’s only natural,” said a trader, “but they shouldn’t have pushed so hard earlier. They pushed it to a level where they were saying “don’t buy” to their customers.”

Product has tightened, mainly due to cracker cutbacks, restricting propylene availability. This has led to producers hiking prices on buyers in September, forcing market demand to quieten by the middle of the month.

“I have bought most of my October needs already,” said another buyer.

Producers still felt that October would remain firm.

“Stocks are very tight everywhere. Nobody has any spare product so even if demand is not strong, our stock position can take it,” said one.

Some sources expressed concern that high European PP prices would attract imports. Chinese Main Port homopolymer injection prices were at $1,080-1,120/tonne CFR. A weak dollar at the equivalent of €0.68 meant deliveries to Europe could become more attractive than to Asia.

The new, long-awaited Middle Eastern capacities have yet to make a dent in European markets, but buyers felt the current disparity between regions could lead to new imports.

“They are going to end up by coming to Europe,” said one buyer, despite several large PP buyers expressing frustration that little has been offered so far.

“The natural destination for the new material is to Asia,” explained a PP producer. “The freight to Europe is much greater from the Middle East than it is to Europe, but if prices go up again here, it could trigger some imports.”

“It’s a bit tricky at the moment,” admitted another producer, “but we are clearly not interested in reducing prices.”

European PP demand was currently 10% below 2008 levels, but one producer estimated this was closer to minus 5% if exports were taken into account. Exports were particularly strong in May to June of 2008, but there were fewer possibilities to export PP.

“We can still send some specialities abroad,” said the producer, “but you can forget exporting commodities at present.”

Despite talk of lower PP prices in the coming weeks, even the keenest buyers did not expect a rerun of 2008 when net prices more than halved during the last part of the year. The price of homopolymer injection dropped from €1,250/tonne FD NWE at the end of August, to just €600/tonne FD by the year end. 

“We won’t see prices collapse like last year,” said a trader. “Brent and naphtha are still relatively strong and we don’t expect to see the distressed sales of last year. The whole system has shown resilience this year.”

To avoid oversupply, PP production was cut back for several months. Cutbacks at the cracker level were also reduced, mainly to minimise ethylene output, further affecting by-product propylene production.

October propylene was expected to be settled by the end of September. Sources generally expected anything between a rollover and small increase from the current September contract of €778/tonne FD NWE.

PP is a versatile polymer, used in the automotive industry, food packaging, health and hygiene products and carpet manufacture.

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

($1 = €0.68)

For more on polypropylene visit ICIS chemical intelligence
For more on INEOS visit ICIS company intelligence
To discuss issues facing the chemical industry visit ICIS connect

By: Linda Naylor
+44 20 8652 3214

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