Europe polypropylene prices highest worldwide on tight supply

21 June 2010 16:26  [Source: ICIS news]

LONDON (ICIS news)--European  polypropylene (PP) buyers are having to pay further increases in June on top of prices that already are the highest in the world as technical issues continue to impact supply and buyers hesitate to take advantage of any arbitrage opportunities out of fear that European values may fall even before imports reach them, sources said on Monday.

“The supply side is a total mess,” said one large buyer, who was not able to get all it needed.

“A price collapse is inevitable,” commented a trader, who had not dared buy material offered for import into Europe due to the six-week lead time it would take to arrive.

“The time it takes for product to get to Europe is paralysing everybody,” said another large PP buyer who had not been offered the imported volumes he had expected in 2010. Some smaller lots were becoming available, but the lowest prices heard were in the mid-€1,200s/tonne ($1,500s/tonne) FD (free delivered) NWE (northwest Europe).

European buyers were being forced to pay even higher increases for June contractual business, after already accepting hikes of 30% so far in 2010. Some sources reported a slight change in product availability in June, however, as PP producers began to offer spot product for the first time in several weeks, albeit at high prices.

“I have been offered homo injection at €1,300/tonne delivered to my warehouse,” said a reseller. “There might be a €10/tonne negotiation margin, but no more than that.”

“For the first time in months I am seeing better availability,” said another reseller. “It’s not a lot - in fact it’s peanuts, but it is the first time that I have seen stuff on offer for quite some time.”

The most recent force majeure in the European PP market came on Friday 18 June, as INEOS announced legal restrictions on supply from its share of the PP plant it runs jointly with Total Petrochemicals at Lavera in France. The cracker failed on Thursday 17 June and was expected to be out of action for eight days.

Earlier, cases of force majeure had been called by INEOS, LyondellBasell and SABIC, and while production at the sites where restrictions had been in place was now largely running normally, inventory levels across the board were low. Buyers have been expecting lower prices from new Middle Eastern and Asian capacities throughout 2010 and many had been living with very low stock levels, which they have not had the opportunity to replenish.

Production in Europe was reduced, initially because of a lack of propylene caused by a cutback in cracker output for commercial reasons, but more recently because of technical issues which impacted availability in Europe.

The price level in Europe was now considerably higher than in Asia, where values had fallen over the past weeks to $1,200-1,260/tonne CFR.

However, a weaker euro, high freight rates, import duties and, above all, the time it takes for product to arrive in Europe, meant that large volumes of imports were not available. This was compounded by buyers’ expectation for prices to fall back in the coming weeks.

“I am only doing back-to-back business,” said another trader. “It’s too dangerous any other way.”

European PP producers expected to be able to maintain high prices in July, however, in spite of expectations of a lower July contract price.

“We are so tight that we will be able to keep any reduction in the next propylene contract price,” said a confident producer.

The June monomer contract had been settled at €1,000/tonne FD NWE, and many PP sources expected July to go down by around €30/tonne.

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

($1 = €0. 80)

For more on INEOS, LyondellBasell and SABIC  visit ICIS company intelligence

For more on polypropylene visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Linda Naylor
+44 20 8652 3214

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