FocusEurope PP tightens further, more hikes expected for April

18 March 2010 12:42  [Source: ICIS news]

“It’s like the end of the film Frankenstein, when the villagers come up to the castle with flaming torches and pitch forks - but all demanding PP.”LONDON (ICIS news)--Polypropylene (PP) availability in Europe has tightened further on announcement of another force majeure and buyers will be faced with yet more increases in April, market sources said on Thursday.

“We will be looking for a three-digit increase in April,” said one major PP producer.

PP prices had increased by €200/tonne in the first quarter of 2010, with net homopolymer injection PP prices trading around €1,100/tonne FD (free delivered) NWE (northwest Europe) mid-March.

INEOS declared force majeure from its Grangemouth PP plant in the UK on 16 March, on technical issues. A lack of propylene at LyondellBasell’s Carrington, UK, site prompted the company to impose force majeure restrictions on PP supply earlier in the week.

UK buyers were in desperate straits.

“People are begging me for PP,” said a UK-based trader. “It’s like the end of the film Frankenstein, when the villagers come up to the castle with flaming torches and pitch forks - but all demanding PP.”

As well as some technical issues that had affected PP supply, propylene constraints affected PP production.

Buying sources said that copolymer was more difficult to get hold of than homopolymer, as the effects of SABIC’s earlier production issues in Geleen in the Netherlands were still felt in the market, coupled with propylene constraints that also affected supply.

“I am able to get hold of enough homopolymer at present,” said a large PP buyer, “it’s copoplymer that’s still a problem for me.”

Another large European buyer agreed that PP availability was restricted and there was no chance of avoiding increases under the current market circumstances:

“We are all struggling to keep our plants running with these price hikes, but with propylene tight, they have got us by the throat. It’s no fun coming to work at present.”

“We won’t be satisfied with just covering the monomer increase for April, whatever that will be, we will be looking to improve margins as well,” said another PP producer.

The April propylene monomer contract was expected to increase, with initial offers by sellers up by €80/tonne over the current March level of €910/tonne FD NWE, but sources said it was too early to tell where the contract would land.

PP inventories along the chain were low, including those of finished goods, as buyers expected new plants on stream in the Middle East and Asia to provide cheaper material in 2010, but delays in start-up and earlier strong demand from China, along with cutbacks European output, left European buyers forced to pay higher prices.

Asian PP prices had remained stable but some sources expected PP to be affected by the sharp fall seen in the polyethylene (PE) market. Homopolymer injection prices were in the region of $1,250-1,300/tonne CFR.

Offers of re-exports from Chinese traders to Europe were currently too high to work, but trading sources saw some arbitrage possibilities if Europe continued to rise and Asian prices slipped.

Some PP buying sources downstream, for example in the fibres sector, were also complaining of the current squeeze.

“The situation is very difficult,” said a beleaguered buyer. “We can no longer compete in some markets as our materials are too highly-priced. How long can this go on?”

“Some of our customers are accusing us of exploitation,” said a producer source who felt that the market would not be able to take yet another big price hike. “I’m really worried about the manufacturing base.”

Another large buyer feared that it would not be able to recover the recent hefty hikes:

“We need to pass on these hikes quickly, but it’s not easy. There must be some natural law that makes prices fall at a certain point.”

Gross homopolymer injection prices were at €1,340-1,350/tonne FD in August 2008, before collapsing to €740-750/tonne FD in January 2009. Spot levels were at €1,250-1,260/tonne FD in August 2008, falling to €600/tonne FD in December, all on a net basis.

Buyers began to make parallels between the market in quarter four 2008 and now, but producers dismissed the idea, saying that the market was on a firmer footing now, supported by crude oil at a more reasonable level of $80/bbl, as opposed to the $147/bbl in July 2008.

Sources expected PP prices to fall at some point as new capacities affected the market, but they agreed that April and even May were looking good for sellers.

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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