Europe PP prices rise as buyers remain nervous about 2010

18 January 2010 14:58  [Source: ICIS news]

PolypropyleneLONDON (ICIS news)--Polypropylene (PP) buyers in Europe are paying price increases in January but buying is being done on a hand-to-mouth basis ahead of the February propylene settlement and amid concerns over the outlook for the year, market sources said on Monday.

Regional differences and a wide spread of prices were reported by market sources.

Southern Europe still reported delays in smaller buyers in particular returning to the market after the recent holidays.

“Customers are still reluctant to start buying. You can sell single trucks, but they want the material within 48 hours,” said one seller in Italy.

“They know that they have to pay higher prices and accept it, but if you can’t deliver immediately they will go somewhere else,” said the seller.

Prices had risen by a minimum of €50/tonne ($71/tonne) compared with the end of December, sources agreed, with some producers still looking for an increase of €80/tonne.

Homopolymer injection prices were reported between €950-1,020/tonne FD (free delivered) NWE (northwest Europe) on a net basis in mid-January, compared with below €900/tonne FD NWE in mid-December.

“We are seeing very careful purchasing behaviour,” said a seller based in Germany, where levels above €1,000/tonne FD were mentioned. “Nobody is pre-buying, even though everybody is talking about more increases next month.”

The February propylene contract has been a major talking point in the PP market, and sources said they expect any increase in the new monomer contract to be passed on to the PP market.

Monomer was tight due to production issues, but there were also cutbacks at the cracker and refinery levels for commercial reasons.

The lack of propylene meant that PP output was also curtailed, leading large buyers no option but to accept increases targeted by their regular suppliers.

Some monomer sellers had mentioned price increases of as much as €90/tonne for February propylene. But the weakening in upstream crude oil and naphtha prices was likely to affect the new propylene contract price in February, sources said.

Brent crude oil rallied slightly on Monday morning, trading at $77.30/bbl, but it was still below the plus $80/bbl plus level trading when big hikes were discussed for February propylene contracts.

Naphtha was down on Monday, at $706-716/tonne CIF (cost insurance freight) NWE.

“We still expect an increase [for the February propylene contract]. But if crude doesn’t rally, expectations will be lower than before,” said a market observer.

The PP market was still waiting for new capacities in the Middle East to offer product, but offers were slow in coming and buyers said they were increasingly frustrated.

“We have been waiting for these imports for so long,” said one large buyer.

Sources said that new product from the Middle East and beyond was destined mainly for Asia.

But sources in Europe said they expect the minimum impact for Europe to be the displacement of potential exports, which would be replaced by new capacities.

“A lot depends on how China buys, both polyethylene (PE) and PP,” admitted a producer. “We are in for a difficult second-half 2010.”

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

($1 = €0.70)

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By: Linda Naylor
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