16 November 2012 09:29 [Source: ICB]
Producers have been unable to send material to export markets, as demand remains flat in traditional export areas
Polypropylene (PP) buyers in Europe are managing to get a November price reduction that is limited to around €40/tonne ($51/tonne) at present, but buyers and sellers remain cautious, market sources confirm.
Price decreases for PP November business are greater than the €20/tonne drop in the upstream November propylene contract price, which settled at €1,120/tonne FD (free delivered) NWE (northwest Europe), but inventories are under control and so far there are few reports of decreases beyond this level.
"I haven't settled yet, and have secured a €35/tonne drop [since October], but am expecting to get [minus] €40/tonne," said a medium-sized buyer. "The market seems to be balanced."
Many converters had expected to get a more substantial price decrease than those being talked at present, but naphtha costs remain high, and production cuts are leading to a balanced supply/demand situation in Europe.
Some sources estimate PP production to be running at 70-80% of capacity, as producers aim to avoid the price decline that was a feature of the market in 2011. Expectations for December and January are mixed. "I can see 2011 happening all over again," said another buyer.
Net prices slumped to levels barely above €1,000/tonne FD NWE in December 2011, before rising sharply in the first quarter of 2012. This volatility has continued throughout 2012, and buyers and sellers have had difficulty managing the sharp swings in pricing.
Homopolymer injection net prices are trading at €1,230-1,250/tonne FD NWE at present.
Producers argue that prices cannot collapse in December as inventory is controlled, and that for a slump to occur there has to be an oversupply of availability.
Demand has been fairly lacklustre, but an improvement in volumes has been seen in November, following two very poor months.
Buyers do not want to end the year with high stocks, however, and plan to buy only what they need, or what will secure end-year rebates. Key demand areas for PP, such as the automotive sector, remain weak in Europe. Car sales in the EU have fallen by more than 10% in 2012.
European producers have not been able to send material to export markets, as demand remains flat in traditional export areas. The balance of the market is down to planned maintenance shutdowns, cutbacks in production rates and occasional smaller production problems. The fly in the ointment could be imported cargoes, delayed in congested ports in Saudi Arabia, however.
Shipments of polyethylene (PE) and PP in the Middle East have been delayed since early October because of congestion at Saudi Arabian ports, but this has now begun to ease and delayed imports are expected to begin arriving in Europe by the end of November and into January. The affected ports include Dammam, Al-Jubail and Jeddah.
"A drop in the naphtha price could change PP pricing, but for the moment, we are playing cautiously," said a producer.
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