Polymers: Polypropylene

27 February 2012 00:00  [Source: ICB]

Higher propylene settlements and snug supply raise PP prices, but demand remains soft

Polypropylene (PP) prices have surged 20% and 24% in Europe and the US, respectively, in February, on the back of higher feedstock propylene settlements and lower cracker output.

US prices climb skywards as propylene settlements rise Copyright: Rex Features

EUROPE PP ON THE RISE
Europe's net spot prices for PP have hit an eight-month high, with producers closing their February books.

Producers are said to only be offering new volumes at higher prices on expectations that another propylene increase is in the works for March, market sources reported.

Producers are no longer selling at early-February prices, which rose by at least €100/tonne ($132/tonne). Some have implemented price hikes of €120/tonne or more. Most are said to be either selling at only yet-higher levels than early February pricing or not selling at all.

European net spot prices for homopolymer injection PP were elevated to €1,260-1,300/tonne FD (free delivered) NWE (northwest Europe) from €1,040/tonne at the end of December - an increase of more than 20%, as assessed by ICIS.

Poor cracker and polymer margins overall prompted this upward push, while crude oil and naphtha prices continue to stay firm.

Production has been cut back at the cracker level, which has translated to reduced polymer output for many weeks as producers were bringing high stocks in the October and November months under control.

Though material has not been short, it has not been long either.

Buyers said they are expecting another PP increase in March based on an anticipated price hike in the propylene contract for that month. Consequently, some buyers are now building up stock in anticipation of the upcoming increase.

The complete demand picture in Europe was not clear in the first half of February, but at least one buyer said demand was below what it expected. Despite this, the buyer was taking on its full contracted volumes in order to have a buffer for next month, when prices are expected to rise again.

NORTH AMERICA SURGE
Similarly, prices in US soared, with the US PP contract up 24% in February. This follows a 16.5 cent/lb ($364/tonne, €273/tonne) rise in feedstock propylene contract prices in the US.

PP contract prices in the US for February were at 83.5 cents/lb DEL (delivered) for homopolymer injection and raffia grade material, as assessed by ICIS. This was based on the monthly polymer-grade propylene (PGP) settlement of 72.50 cents/lb for February.

This price increase is the first in US PP contracts since May 2011, when homopolymer injection prices were at 108-110 cents/lb. In the following months, PP prices plummeted by 38% before hitting a low in December 2011 of 67-69 cents/lb, as assessed by ICIS.

Although the increase was not a surprise, given that one nomination for February propylene prices was at 22 cents/lb, market players said that this double-digit hike will hurt demand.

Some buyers have already said they would reduce their orders for the month. Others said their orders would depend on what the sentiment is for March.

If demand is reduced in February, that may ease some of the tightness in secondary markets, market players said.

Buyers have been investigating imports as an alternative to the increasing volatility in domestic US prices, but sources do not believe that large volumes of imports coming into the US at this time.

March US pricing remains uncertain as some market players expect prices to settle flat for the month, while others expect an additional price increase of between 4-6 cents/lb.

Meanwhile, Mexico's PP prices were also on the rise in the first half of February, though an initial price increase by Indelpro, which is Mexico's sole PP producer, was moderated when the company reduced its original increase by 6 cents/lb from 22 cents/lb to 16 cents/lb for the month of February.

Though buyers received the announcement of the reduction, some are expected to negotiate for a lower price still.

The current increase puts homopolymer prices in Mexico at 92 cents/lb, with copolymer grades slightly higher, as assessed by ICIS.

ASIA WEIGHS IN
In comparison, China's PP prices are expected to fall in the near term due to weak demand, which is the result of low plant operating rates in most downstream markets.

The domestic Chinese PP market has been experiencing a labor shortage among downstream producers, which has led to the currently low 70% plant operating rates seen in February, according to market players. Downstream producers are also still coping with tightened credit, which has kept their buying interest weak.

Market players previously expected prices to rise, but this sentiment weakened when demand did not pick up as anticipated and upcoming turnarounds in the country failed to support prices. PP traders are now pessimistic about the price outlook and have consequently reduced their offers in order to offload inventories.

Major China-based producers Sinopec and PetroChina were said to be implementing retrospective pricing for PP in east China in the early part of the week ended February 24 in response to the weak demand.

The two producers usually implement retrospective pricing during periods of lukewarm market demand and in times when their distributors decline to offtake cargoes.

On January 14, Sinopec had initially raised its PP yarn prices by yuan (CNY) 100/tonne ($16/tonne, €12/tonne) to CNY10,500-10,800/tonne over January 13 prices, according to data from Chemease, an ICIS service in China.

Additional reporting by Michelle Klump and George Martin in Houston and Bee Lin Chow and Amy Yu in Singapore

By: Feliza Mirasol
+1 713 525 2653

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