06 November 2012 13:00 [Source: ICIS news]
By Cuckoo James
LONDON (ICIS)--The average price premium held by Asian and Middle Eastern exports of copolymer block polyproplylene (BCPP) over homopolymer raffia polyproplylene (raffia PP) into Africa and China has dropped significantly, ICIS data show.
The start-up of new PP plants in China, South Korea and the Middle East in recent years has caused the spread to shrink.
The average BCPP premium in China has dropped to $16/tonne over the past year (November 2011-2012), from the average premium of $47/tonne in the past five years (November 2007-2012). The average premium in China was at $32/tonne in November 2010-2011, almost double that of 2011-2012.
A Middle East producer that exports to both Asia and Africa said: "We never used to have so much [copolymer]. All of a sudden availability has improved [especially] over the past eighteen months."
In Africa, another Middle Eastern export market, the drop is significant compared with the previous year.
In western Africa, the average BCPP premium was at $47/tonne over the past year, from October 2011-2012. The average premium was almost half that of the previous year, which came in at $86/tonne from October 2010-2011. The two-and-half-year average premium was $78/tonne from May 2010 to October 2012.
PP producers in southeast and northeast Asia previously commanded a premium on BCPP, but this is largely disappearing, with South Korean producers keen on keeping the spread tight.
Middle East PP producers are joining the trend, as they have recently been under pressure to cut premiums on copolymer block grade because of improved availability and slow demand across its key export markets.
A second Middle East producer that also exports to Asia and Africa said: “The Middle East [export] market is dominated by China, in China there is no such premium [and] producers have to get rid of material. Historically this wasn't the case – last year there was a $40-50/tonne premium over raffia in China.”
Short-term factors, such as year-end slow demand in Europe and slow sales in China, are also putting pressure on Middle Eastern producers.
The premium plummeted in the Middle East’s export markets in Africa from September to October 2012 as a result of the above factors.
In western Africa, BCPP was selling at $1,530/tonne (€1,193/tonne) CFR (cost & freight) on average in the week ending 31 October – only $15/tonne higher than the average raffia PP price of $1,515/tonne CFR. The average BCPP premium was as high as $85/tonne in September.
"It is end of year, Europe is under pressure. Basically they would rather not buy spot, so there is some pressure on copolymer producers. In Europe the premium used to be $50-60/tonne, but these days the pressure is on any producer producing [copolymer],” the second Middle East producer said.
In Europe, the average BCPP premium dropped to €47/tonne in the spot market over the past year, from November 2011-2012, compared to an average of €59/tonne over the past five years, from November 2007-2012, ICIS data show.
The average premium in Europe was higher the previous year, at €65/tonne from November 2010-2011.
A third Middle Eastern producer that sells into Asia, Africa and Europe said: "Due to the automotive demand being slow [in Europe], integrated producers which normally sell to their affiliatives cannot sell. That explains to me the excess of the block [copolymer] in the market. Otherwise it makes no sense.”
A producer from the Middle East is offering BCPP at €1,230/tonne ($1,577/tonne) FD NWE (northwest Europe) this week, an industry source said. BCPP was selling at an average of €1,275/tonne on 2 November, while raffia PP was selling at an average of €1,235/tonne FD NWE.
The first Middle East producer said: “We are trying to maintain a premium because of the pure value and cost of [copolymer] PP. [But] some of the Saudi suppliers have different ideas about their pricing – they are really not pushing prices high, it is a grab for market share.”
Additional Reporting by Ong Sheau Ling, Chow Bee Lin and Linda Naylor
($1 = €0.78)
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