FocusNWE propylene under intense bearish pressure

22 July 2011 12:46  [Source: ICIS news]

The European propylene market is coming under intense downward pressure because of lower-than-expected demand.LONDON (ICIS)--The European propylene market is coming under intense downward pressure because of lower-than-expected demand, market sources said on Friday.

This is caused by technical problems at certain derivatives exacerbating an already weak situation on its key derivative polypropylene (PP).

Reduced consumption means propylene supplies are building, and some producers and even some consumers are urgently looking to offload volumes. This is despite some cracker reductions that had been implemented in June and ramped up in some areas in July, to re-balance the ethylene market.

As a result, spot prices have been falling and latest indications suggest that even €850–900/tonne ($1,214–1,285/tonne) CIF (cost insurance freight) NWE (northwest Europe) for polymer-grade is finding no buying interest.

Chemical-grade prices are being heard at around €800/tonne on the inland market, while on the coastal market prices could be below €700/tonne and near the propane value to make an export workable.

“Producers and traders are willing to make [price] concessions” a major consumer said. He added it was a shame as it simply could not accomodate the additional tonnes even though it would have liked to take advantage of the cheaper prices considering that the prevailing July contract price still stands at €1,130/tonne FD (free delivered) NWE.

“It seems pretty long”, one propylene producer said, adding “Being honest, I am desperate.”

It said “[The market] is already talking about August [deliveries] and we are still looking for room for July cargoes. I thought August would be better, but things are getting worse.”

Another propylene producer said “PGP (polymer-grade propylene) is bad. [Our] customers are trying to take less.” It said its customers were saying that they could not deal with inventory levels.

Some volume had recently been booked for export to Mexico, sources said, and while there appeared to be opportunities to sell cargo into the Asian market, this was only workable if cargo sizes were large enough to be freight-advantaged.

“It’s $400/tonne plus freight for a small size cargo and this would mean export prices below €800/tonne,” a trader said.

Earlier this week, Borealis said it would shut its propane dehydrogenation unit and splitter in Belgium for repair. There was also talk about reductions and/or stoppages at sites in France and Spain, but sources said there seemed to be little reversal of the trend.

The August contract discussions getting under way may have something to do with the reluctance to buy. Expectations of a decrease usually mean that buyers postpone any requirements into the next month to take advantage of the lower price.

“I want to believe that, but I don’t see people willing to take at all in August,” the propylene seller said.

While there was much feeling that the contract number should go down, squeezed cracker margins, because of firmer naphtha feedstock prices, will make producers reluctant to do this.

A second consumer described the current propylene situation as a catastrophe. Its view was that the main reason for the lengthening market was the failure of European derivatives to keep up with its more competitive Asian counterparts.

“If the price doesnt go down in August, it will kill more demand,” it said. “Everyone is under pressure.” And it added that contract offtake was at low levels.

“I have it [propylene] like a tsunami in front of me; I have to reduce [my] balance dramatically. I can’t give orders for August before I know what the price is going to be” it added.

($1 = €0.70)

For more on propylene visit ICIS chemical intelligence


By: Nel Weddle
+44 20 8652 3214



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