Poor margins for Europe polypropylene threaten supply - producer

08 March 2010 16:22  [Source: ICIS news]

LONDON (ICIS news)--Polypropylene (PP) supply in Europe may be threatened due to poor margins, as propylene prices soar and competitive derivatives pay the high price for extra monomer volumes, said a major PP producer on Monday.

“If PP prices don’t go up further, there won’t be enough around. Other propylene derivatives have better margins than PP and can take the high spot prices that we can’t,” said the producer.

Unplanned production issues continued to impact heavily on European propylene supply amid tight global supply of the product.

With strong global prices, imports were unlikely to provide any relief, according to monomer market sources.

Another European PP producer complained about high monomer costs.

“We were offered spot propylene at well above €1,000/tonne ($1,370/tonne). That is just greedy,” he said.

Spot monomer prices had moved up towards the €1,000/tonne CIF (cost insurance freight) ARA (Amsterdam, Rotterdam, Antwerp) level. But market sources said that PP producers could not take such high levels for significant quantities, as PP prices were not strong enough to cover such a hit.

The March propylene contract settled at €910/tonne FD (free delivered) NWE (northwest Europe), up by €35/tonne from the February contract.

PP homopolymer injection was trading around €1,100/tonne FD NWE on a net basis.

PP prices were on the increase again for March, after rising by a minimum of €150/tonne for January and February combined.

March business was still under discussion, but there was a general acceptance from buyers that the minimum increase would reflect the €35/tonne in the March propylene contract price. PP sellers said they wanted more, however.

European propylene and polypropylene prices

“We have been increasing [PP] prices by €50/tonne so far in March, but now we are aiming to increase by €70-80/tonne for extra volumes,” said another major PP producer.

Another PP producer said: “We are probably going to announce a second increase for March this week.”

A large buyer said: “If propylene is as tight as they say it is, then I suppose we will have to bite the bullet and pay more increases this month, but this is not doing the industry any good at all.”

Another buyer said: “Demand is not great. We will have to pay increases but will buy as little as possible.”

Stocks along the line were low as high crude oil and naphtha prices had dented margins.

New production was coming on stream in Asia and the Middle East, but at a much slower pace than had been expected.

According to most market sources, expectations now were that there would be several months of high propylene costs and restricted availability, rather than the buying spree that buyers had expected with the onset of new capacities.

Both buyers and sellers acknowledged that the current strength of PP pricing was due to restricted availability, rather than strong demand.

“We have seen some recovery of demand. In fact, this is the strongest order intake since months at this early stage, but it is not a trend change. We are still working on a low level, with some seasonal recovery, nothing else,” said one of the producers. “Buying remains hand to mouth.”

Restrictions in the upstream propylene market were caused by refinery cutbacks and, more recently, production issues at some steam crackers and propane-dehydrogenation units.

In addition, there have been production problems and planned maintenance shutdowns at some PP units.

While it was unclear how long restrictions would affect the PP market, producers were confident that the current situation would last until April at the earliest.

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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