FocusEurope PP buyers under pressure to pay more in January

03 January 2014 10:57  [Source: ICIS news]

By Linda Naylor

Europe PP buyers face price pressureLONDON (ICIS)--Polypropylene (PP) buyers in Europe are facing price increases again in January, following a €30/tonne ($41/tonne) hike in December pricing and a €20/tonne increase in the January propylene contract price, several said on Friday.

December PP prices rose in line with the €30/tonne increase in the December propylene contract price, with most net spot homopolymer injection prices trading around €1,220-1,250/tonne FD (free delivered) NWE (northwest Europe), but buyers said that January sellers were looking for more than the €20/tonne hike of the January monomer.

“I’m not sure how successful they can be in pushing more than the monomer,” said one large buyer who did not see demand as strong enough to support a significant increase in January.

Some production problems at the end of 2013 have tightened availability with some producers, and one major seller said its stock levels were low. Propylene availability issues in some areas have also tightened PP output. Cutbacks have been made at the cracker and polymer level to avoid oversupply in a flat market.

Cracker margins are not strong and cracker cutbacks have affected propylene more than ethylene.

The latest PP production problem in Europe is at Total’s site in Gonfreville in France, according to several sources, but the company declines to comment on day-to-day operations. Buyers said the company had declared force majeure on PP on Thursday 2 January.

Total declared force majeure on some high density polyethylene (HDPE) grades on 30 December, because of issues at the olefins plant, according to a letter sent to its customers.

The increase in import duties from established importers is expected to have an effect on pricing in 2014, but it is not yet clear how much it will affect January levels.

PP from GCC (Gulf Cooperation Council) countries is commonly imported to Europe and sellers said they are not prepared to take a full 3.5 percentage point hit in margins, following the implementation of the increase in duty from 3% to 6.5% on 1 January 2014.

Most PP business is yet to start for the year, so it is not clear how the increase in duty will affect pricing. Several sources said they expected the full implementation of the new duty to take time, and much would depend on the level of demand in Europe in 2014.

“There are a few favourable conditions for an increase in January,” said a producer. “The increase in import duty, low stocks with producers and also export opportunities to Asia. Netbacks are better for exporting at the moment than selling into Europe.”

Most sources expected little change from 2013 in 2014. By the end of the year, however, Borouge 3 would be on stream, with its PP capacity of just short of a million tonnes a year, and this is expected to impact PP business globally.

European PP buyers generally settle monthly business in the first part of the month, but with southern European players coming back to the market no earlier than 6 January, pricing is expected to be late settling this month.

PP is used widely in the packaging and household goods sectors, and also in the carpet and automotive industries.

($1 = €0.73)

By: Linda Naylor
+44 20 8652 3214

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