25 May 2011 11:55 [Source: ICIS news]
(recasts, amending headline and lead)
LONDON (ICIS)--Most European polypropylene (PP) producers will find it difficult to hold prices steady after the June contract price for the feedstock propylene (C3) fell by €40/tonne ($56/tonne) from the previous month, market sources said on Wednesday.
In addition to the feedstock’s price fall, PP producers said buyers remain cautious, which has caused a slowdown in demand on a global scale and freed up the availability of certain grades.
The resulting balanced supply and reasonable demand have largely offset the pressure of imported material building on PP prices, holding May contract prices steady. However, there have been a few corrections of €10–20/tonne – both up and down – at one or two accounts as the spread of the prices narrowed.
“We would have thought the propylene settlement would have been slightly higher. We were quite surprised by the minus €40/tonne. We expected something in the region of [minus] €25-30/tonne,” a PP producer said.
The producer said that although it did not yet have any official pricing nominations for PP prices in June, it would aim to “try and cover the margin we lost in April and May. We will do our best to claw the margin back.”
The producer also added that it was predicting strong offtake in June.
“Automotive, packaging and construction applications are still very firm, and [June is] usually a strong month in terms of demand. People seem to be able to talk the market down, though,” the producer said.
This cautious optimism was not shared by all producers, however, as one expressed frustration that the propylene reduction did not go far enough.
The second producer said: “We would have been happier to see a minus €75/tonne or something – a one-off price correction. This minus €40/tonne, if it is accepted, means we are going to struggle for the next few months as it keeps the pressure on the prices.”
The second producer also said that record-high PP prices are stifling demand, and that the reduction offered little relief to suppliers – who would not be able to retain any of the price movement in order to firm their margins – or to consumers, who are still facing high costs.
“I’m afraid this is a slippery slope. There will surely be another reduction for July now,” the second producer said.
A similar sentiment was echoed by a pipe converter, who said: “It is difficult to say whether I'm happy about this news or not. Our margins are still squeezed from the upstream, but we will certainly have to pass the reduction on to our consumers. We will find it difficult to hold any margin back for ourselves, so we cannot recover the lost ground.”
However, all sources interviewed said they expect a full pass-through of the minus-€40/tonne.
($1 = €0.71)
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