Europe Feb polypropylene prices rise but demand remains low

15 February 2010 15:57  [Source: ICIS news]

LONDON (ICIS news)--European polypropylene (PP) buyers are paying higher prices in February but buying has been limited to essential purchases, as there are still widespread expectations of a price drop in 2010, sources said on Monday.

“We have seen the same buying pattern for several months now,” said a major producer. “Everyone is very cautious, buying on a hand-to-mouth basis.”

PP prices had risen by a minimum of €85/tonne ($116tonne) at most accounts in February, as producers pushed through the propylene monomer increase on to buyers. Net homopolymer PP injection prices were now around €1,020/tonne FD (free delivered) NWE (northwest Europe).

Propylene for February stood at €875/tonne FD NWE, up €85/tonne from the January contract.

PP prices had risen due to a reduced level of output; however, this had been mainly because of the lack of available propylene monomer, rather than strong demand.

“Demand has been very disappointing,” said the producer. “But we have managed to balance the market because of monomer constraints, but also very careful planning.”

Recent figures showed that PP growth was down by around 5.5% in 2009 compared with 2008, and a couple of producer sources canvassed by ICIS news said they expect levels to be in line with GDP in 2010.

Production issues also affected supply in February.

SABIC declared force majeure on copolymer deliveries from one of its two plants at Geleen, the Netherlands, on 8 February, due to technical issues that affected production. A company source said it expects deliveries to be back to normal during the course of March.

Additionally, INEOS continued to report tight stocks due to the polyethylene (PE) issue at Grangemouth, UK, where reduction of the cracker rate led to propylene availability issues for PP. The latest news suggested that PE production would be back to normal by the end of February.

INEOS had already increased its offer prices of February PP to plus €100/tonne for new business.

In spite of the strong upward pressure from producers, some smaller and medium-sized buyers said they intend to limit buying as much as possible in February, in order to avoid increases.

“I haven’t bought anything yet this month, and I don’t know whether I will. I keep getting calls from my sellers telling me that product will have run out if I don’t buy soon,” said one smaller buyer, who was not convinced by such an argument.

Larger buyers, who were more dependent on the continuity of supply, generally acknowledged that they had to pay the increases demanded if they wanted to get their material.

The market was still waiting for new Middle Eastern and Asian capacities to have an effect on prices, but projects were delayed, and the recent strong demand from China soaked up any increased material.

However, activity had slowed significantly in the past few days, as China came to a halt for Lunar New Year celebrations.

“A lot will depend on how strong China is after the holidays,” said one observer. “Product has been offered into Europe from the Middle East, as they haven’t been able to sell to China, but they want high prices. And nobody wants to commit to those with a six-week lead time,” the observer added.

A rollover to slight increase was expected for propylene monomer in March, but PP producers were already mulling over increases for March PP due to the supply/demand balance, which they saw as in their favour.

“There is only one side to this market at the moment,” said another producer.

“[Propylene] is tight and production issues have made it tighter. The whole of the first half of 2010 will be balanced. There is still plenty of life left in this market and we need better margins,” the producer added.

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

($1 = €0.73)

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By: Linda Naylor
+44 20 8652 3214

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