FocusEurope PP buyers pay hikes in Sept, but eye lower Oct prices

19 September 2013 12:34  [Source: ICIS news]

By Linda Naylor

LONDON (ICIS)--Polypropylene (PP) buyers in Europe are paying increases of at least €60/tonne ($81/tonne) in September, but demand is suffering as many expect pricing to ease in October, several sources said on Thursday.

Expectations of a price decrease next month are largely based on lower naphtha prices that some market participants expect to impact propylene and PP prices.

Not all players were convinced of a price reduction in the October propylene monomer contract, however.

“Nobody is factoring in crackers losing money,” said a producer who claimed spot propylene was too expensive to buy at present.

Cracker margins have improved as naphtha prices have receded on falling tensions over the situation in Syria, and on Thursday morning naphtha was trading at $906-908/tonne CIF (cost insurance freight), from a level of $965-967/tonne CIF NWE during the week ending 6 September.

September PP monthly prices have risen in line with the €60/tonne increase in the monthly propylene contract, confirmed by most buyers, but sentiment was weakening as the month progressed and naphtha prices slipped.

“Demand is weak because buyers expect prices to go down in October,” said a distributor.

Spot prices have eased from their high at the end of August, and homopolymer injection is now trading below €1,300/tonne FD (free delivered) NWE in special cases, with prices above €1,300/tonne FD NWE still in the market.

Many buyers still prefer to stick to contracted business as net prices can be as low as €1,260/tonne FD NWE, taking into account all rebates, including end-year volume discounts. Such levels are only applicable at large accounts.

The focus of the PP market is now propylene, and where the new monomer contract will land in October. Most sources said it was too early to talk about this with any certainty so early in the month, but opinions were clearly divided between those who expected a rollover to small increase, and those who were confident of a small decrease.

“Even if propylene rolls over in October, PP prices will slip,” said a buyer who considered demand too weak to support anything else, but PP prices have followed propylene prices closely in recent months, and production cutbacks are still in place as both buyers and sellers keep strict control of stocks.

Another factor that is also beginning to enter into the equation is pricing for 2014. New capacity due to come on stream in the Middle East in the middle of 2014 is going to have an impact on PP globally, and buyers said that several producers are now eager to secure volumes for next year.  Under development by Austria-headquartered chemicals producer Borealis and the Abu Dhabi National Oil Co (ADNOC), Borouge 3 will produce 960,000 tonne/year of PP when it comes onstream in Abu Dhabi in mid-2014.

By midday naphtha had jumped to $932-934/tonne CIF NWE, bucking its trend of recent days and potentially leading to another shift in sentiment in the European PP market.

($1 = €0.74)

By: Linda Naylor
+44 20 8652 3214

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