Europe PP buyers grim as prices reach 15-month high

01 March 2010 15:56  [Source: ICIS news]

LONDON (ICIS news)--European polypropylene (PP) prices have a reached a 15-month high as buyers complain that they have been unable to recover the hefty increases foisted on them this year, several said on Monday.

“It’s not easy,” said one large buyer. “[Producers] will have to be careful. We often have annual prices with our customers and we simply can’t recover these increases.”

Another buyer said: “They are showing a total disregard for their markets.”

March PP prices were not yet settled, but several buyers reported that their aim was to accept only the increase in the upstream propylene market.

The March propylene contract increased by €35/tonne ($48/tonne) from February to €910/tonne FD (free delivered) NWE (northwest Europe), after rising by €85/tonne from January to February.

Homopolymer injection prices were currently around €1,050/tonne FD NWE on a net basis, their highest level since 24 October 2008.

PP producers had managed to recover the February propylene increase with little difficulty as product availability was tight, and market sources said they saw little difference in March.

“In the worst case, we will accept [plus] €50/tonne, but our aim is to get them down to €40-45/tonne above February,” said another buyer.

“It’s really very difficult because of availability. We have had difficulty getting hold of some grades and have had to look for alternatives from other suppliers. We have had to close down some lines,” the buyer added.

The main reason for shortages in the PP market stemmed from the upstream propylene sector. Steam crackers had been cut back to limit the output of ethylene and this inevitably impacted propylene output.

Refineries had also been cut back for commercial reasons, limiting propylene from propane dehydrogenation units; and when strikes hit French refineries in the last week of February, propylene supply had become critical.

“Our end-markets are in no state of recovery and polymer prices just keep rising month after month after month,” said another large buyer.

“Are there any hints of respite in the distance? New supply is well known in Middle East, but we seem immune to any opportunities to buy,” the buyer added.

There were few signs that quantities of Middle Eastern material would come to the aid of beleaguered European buyers in the short term.

“At this rate, the new capacities will only be arriving in Europe in 2011. I think the market has made a gross miscalculation over this new material. I can see it being absorbed naturally into global markets,” said a producer.

Several monomer sources said they expected propylene to be tight throughout 2010. At present, many PP buyers said they see the Middle East as their only hope.

“European producers will regret this,” said one of the large buyers. “When prices start to fall, we will push as hard as we can. It won’t be erosion, it will be a collapse,” it 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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