17 May 2012 12:52 [Source: ICIS news]
By Linda Naylor
LONDON (ICIS)--Polypropylene (PP) buyers are getting discounts of €50-60/tonne ($63-76/tonne) on their April monthly purchasing price in spite of only a €15/tonne drop in the May propylene contract price, but spot prices are offered at much lower levels than in early May, several players said on Thursday.
Buyers are very cautious, expecting lower prices in June, as crude oil and naphtha prices slip, leading to expectations of a big drop in June ethylene and propylene contracts. Even the very low spot PP prices in the market are sometimes shunned because of the uncertain economic situation in Europe and beyond.
Offloading of spot product is largely put down to the recent fall in crude oil and naphtha prices, as integrated producers’ margins improve on lower costs. Brent crude was trading at $109.83/bbl late on Thursday morning London time, and naphtha was at $874-882/tonne CIF (cost, insurance and freight) NWE (northwest Europe) at the same time.
In early April Brent was above $125/bbl, but prices have fallen steadily since then.
“Now that everybody expects [a] lower propylene [contract] in June, they have bought everything they need for May and are waiting,” said a major producer.
Spot PP prices have fallen dramatically in the past couple of weeks as upstream costs have diminished and traders with any product offload it.
In mid-April, spot homopolymer injection PP prices were still around €1,350/tonne FD (free delivered) NWE, but this week offers have been closer to €1,200/tonne FD NWE with few takers.
Several sources are now wondering whether 2012 will be a repeat of 2011, when prices began to fall in May and fell steadily until the end of the year, before increasing by over 30% in the first four months of 2012.
“Integrated margins will determine how far prices fall,” said one observer. “Once margins get squeezed producers will cut production. It’s the only way.”
Buyers are not particularly happy with the way producers are handling the current volatility.
“Producers have been very efficient in passing the monomer movement straight on to converters. We are the shock absorbers between the upstream volatility and downstream stability at the consumer level,” said Ian Robinson of Innovia on Wednesday at the ICIS World Polyolefins Conference in Brussels.
Other buyers expressed similar views.
“It would have been better if we had seen a more realistic drop in the May monomer contract,” said another buyer, commenting on the meagre €15/tonne drop in the May propylene contract price that did not fully reflect the supply/demand situation, according to many players.
PP is used widely in packaging and in the manufacture of household goods and in the automotive industry.
($1 = €0.79)
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