FocusEurope PP hits new record high, producers predict more hikes

17 January 2011 12:05  [Source: ICIS news]

Europe PP hits record high LONDON (ICIS)--Polypropylene (PP) prices in Europe have reached a new record high as producers push levels up following a hefty increase in propylene prices in a market free from the competition of imports, market sources said on Monday.

Net homopolymer injection PP prices were trading at €1,280-1,310/tonne FD (free delivered) NWE (northwest Europe) in January but several buyers said that they were being cautious this month, despite warnings of yet more hikes in February.

Producers took a different stance when settling January business, with some settling for slightly less than the €110/tonne ($147/tonne) increase in the propylene monomer contract price, which settled at €1,070/tonne FD NWE.

Others were less flexible.

"If they don't want to buy at plus €110/tonne, I'll keep my product and sell it for more in February," said one producer.

Another ventured an explanation as to why not all producers were pushing for the full propylene increase of €110/tonne.

"Margins have been healthier in PP than in PE [polyethylene]. That could explain why some sellers are happy with something less than the €110/tonne," it said.

However, concessions below the €110/tonne target were not great.

"I've not settled yet and am discussing between plus €90 and plus €100 [a tonne]," said one buyer.

Polypropylene Europe

Levels had been at €1,250-1,310/tonne FD NWE in July 2010, and in July 2008 had reached €1,250-1,260/tonne FD NWE, when Brent crude oil was at a record high of $147/bbl. Brent crude was trading at $97.84/bbl on Monday morning.

There was evidence of pre-buying of PP in December 2010 as some buyers planned not to buy at all in January.

"I don't know what [increases] they are looking for, I have enough in stock not to buy at all this month," said one buyer.

This sentiment was confirmed by a reseller.

"This year has been slow to start. Our sales are only 80% of what we expect them to be so far," it said.

Several sources mentioned that credit was now becoming a problem again, as prices were high and credit limits were stretched.

"For the moment it is impossible to absorb these increases. Somebody will have to pay for them, so I suppose they will add to inflationary pressures in some markets," said one of the buyers.

European PP producers had no competition in the form of imports, as Middle Eastern plants were delayed and Asia continued to be the destination of choice for these sellers.

Some sources have begun to look carefully at Asian prices and the possibility of arbitrage opportunities between the two regions. PP was offered into China at $1,550/tonne CFR (cost and freight). With import duties up to 6.5% and high freight rates and costs in Europe, there was currently little chance of this, most agreed.

February PP pricing was expected to follow the propylene price. The monomer contract would be settled towards the end of the month, and PP producers were expected to seek similar increases for February PP. Monomer price hikes were expected to increase by €20-50/tonne, but sources said it was too early to tell where the February propylene contract would land.

"I am concerned what will happen in March, because margins will be good and producers will run flat out. There could be some price erosion, although in this market at the moment things can change daily," a trader said.

PP is a versatile polymer used extensively in packaging and household goods and in the automotive industry.

($1 = €0.75)

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By: Linda Naylor
+44 20 8652 3214

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