12 October 2012 09:41 [Source: ICB]
Buyers are confident of polypropylene price reductions in October following increases in August and September
Weak demand in Europe is affecting expectations for October polypropylene (PP) volumes and pricing.
France's car registrations fell by 18.3% year on year in September, according to figures released on 1 October by the Comite des Constructeurs Francais d'Automobiles (CCFA), while Spain's plunged by 37% in September, with the year running down by 11%, according to Asociacion Espanola de Fabricantes de Automoviles y Camiones (ANFAC). Italy has also posted very poor results.
Several PP buyers mentioned these figures as an indication of the weakness of some European economies, and not only because they are affecting the PP market directly, as PP is used widely in auto manufacture.
October has been slow to start for PP business. The monthly propylene monomer price fell by €20/tonne ($26/tonne) to settle at €1,140/tonne FD (free delivered) NWE (northwest Europe), and while some producers are still targeting a rollover for October PP pricing, buyers are confident of a price decrease of a minimum of €20/tonne. Some say they already have indications from western European producer sources of a drop of €30-50/tonne.
"Our aim is to maintain margin in October," explained one major producer. August and September PP prices rose by a total of close to €300/tonne, following a fall of more than €300/tonne in the previous three months, leading to complaints from converters that such extreme volatility was impossible to manage.
Volatility has been caused by similar price moves in upstream feedstock naphtha, which remains high.
On 2 October, naphtha was trading high at $975-977/tonne CIF (cost, insurance & freight) NWE. During the week ended 22 June it had decreased to a low of $683/tonne CIF NWE.
Producers and converters have found this level of volatility hard to manage and both complain of an unsustainable situation with such big price swings and high upstream costs. The situation is exacerbated by weak European economies.
"Demand is still not there," said a converter. "Our order books are down to two weeks when they should be at five to six weeks."
Some sectors are faring better than others. "Our demand is holding up well," said a converter in the food packaging industry.
October seems to be starting slowly, and demand is expected to play a major role in how pricing evolves this month.
"Nobody is calling me at the moment," said a reseller. "Let's see how demand pans out in the coming days as that will set the scene for prices."
Homopolymer injection PP prices are around the €1,330-1,350/tonne FD NWE level on a net basis for European product at medium-sized accounts. Some spot buyers have begun to report levels down to €1,250/tonne FD NWE as the month has progressed, however.
PRICE DIP EXPECTED
While many sources expect lower prices in October, a collapse in pricing is not envisaged by most. Naphtha prices remain high and converters need to recover the increases of August and September.
Many large PE and PP buyers are torn between pushing prices down in October, and accepting a relatively stable pricing position, as they need to recover increases taken on board in August and September from their own downstream markets. A swift drop in October raw material prices would make this very difficult for them.
By the second week in October, PP prices have begun to dip, but so far softening has been limited to the €20/tonne decrease of the October propylene monomer contract settlement. There has been talk of decreases of €50/tonne but this has not been confirmed.
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