27 September 2012 10:17 [Source: ICIS news]
By Linda Naylor
LONDON (ICIS)--European polypropylene (PP) buyers paid increases of at least 9% in September but many are now waiting for lower offers in October, some said on Thursday.
“If I don’t get a €50/tonne ($64/tonne) reduction for October I’ll be disappointed,” said one.
Spot prices are already under downward pressure, but spot business is patchy and confirmed business thin. Spot sellers talk of homopolymer injection levels of €1,260-1,300/tonne FD (free delivered) NWE (northwest Europe) as representative of the market at present. Earlier in September they were at €1,310-1,350/tonne.
Monthly contractual buyers have been faced with increases of a minimum of €105/tonne, with most having to pay more. Some producers talk of increases up to €160/tonne but these are thought to be the exception rather than the rule.
Expectations of a price reduction in October are based on the drop in upstream naphtha prices in the past couple of weeks. On Thursday morning it was trading at $938-940/tonne CIF (cost insurance freight) from a high of $1,008/tonne earlier in September, and a low that touched $900/tonne CIF NWE briefly last week.
The volatility of these upstream movements and subsequent impact on the PP market have been difficult for buyers to manage, and many say it has been hard to recover all the increases taken this year as prices have moved so quickly, often turning round in a matter of days.
PP volatility has been mainly down to movements in the naphtha market. During the week ending 22 June, naphtha slumped to a low of $683/tonne but it peaked at $1,005/tonne during the week ending 14 September. Its high point in 2012 was in the week ending 2 March when it reached $1,083/tonne.
“I am seeing my suppliers next week,” said one PP buyer, “but it’s not to talk about pricing, it’s to talk about volatility. We just can’t manage like this.”
Another said: “This volatility is really not helping.” The source added that it is difficult to pass on increases to their own downstream sector when prices have changed direction and are moving back down.
Demand for PP has tailed off considerably in September following an unusually strong August. Formidable price increases in the propylene sector have been passed on to the market in August and September, amounting to almost €300/tonne.
Many players suspect the strong demand of July and August, and the price increases of August and September, to be down to restocking on the behalf of converters, and even further down the pipeline, as early June stock levels were very low.
Producers began the month of September with low inventories, but these are being replenished as demand wavers.
The focus of the market is now on where the October propylene contract will land, and how demand will fare in the fourth quarter.
A modest decrease is widely expected in the October propylene contract, and while producers have not made their position clear for October PP pricing, it is unlikely that they will be willing to lose the regained margin that most still say is still unsustainably low.
Many players are sceptical over demand in the latter part of the year, based on the continued poor outlook for European economies and a fairly flat situation in Asia.
The gap between Asian PP prices and those in Europe is leading to import offers and some traders have booked volumes to arrive at the end of October, beginning of November. Others have not taken the risk, expecting European PP prices to fall during the fourth quarter.
PP is used in the packaging, household goods and automotive industries.
($1 = €0.78)
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