Europe MPG prices continue upward on supply shortage, no end in sight

18 July 2014 23:59 Source:ICIS News

LONDON (ICIS)--European monopropylene glycol prices continue to drift upward as availability plummets, sources said on Friday.

Six weeks after the fact, market participants said the full impact of the explosion at Shell’s upstream propylene oxide (PO)/styrene monomer (SM) facility in Moerdijk, Netherlands, has yet to be realised despite average MPG prices rising to a 40-month high.

As 10% of all European PO vanished overnight in the wake of the explosion, producers are increasingly cautious about which derivative to manufacture with their precious molecule. Sellers consider MPG to be less profitable than polyols despite the recent MPG price spike. Polyols prices also rose in July but not to such a significant extent.

A shortage like this has not been seen since the 2010/2011 European winter storm, when MPG prices spiked to record levels. The comparison is not exact, as in 2010/2011, the shortage was demand driven by the de-icing sector and only affected MPG. In this case, the shortage is supply-driven and affecting upstream PO which has generated a knock-on effect downstream.

“It is phenomenal,” a producer said. “I have never seen anything like it, we are struggling to keep up with demand. We are actually turning business away.”

Market sources expect MPG prices to continue rising in the near term before stabilising.

“I see no signs of this current situation changing [in the near future],” a trader said. “It will depend on the ratio of supply [to demand levels going forward]… There has been no official statement from Shell but it is clear it will take 6-12 months [to rebuild the Mordijk PO/SM unit].”

Demand from the unsaturated polyester resin (UPR) sector is healthy, putting additional upward pressure on prices. Buyers and traders, while conceding prices are rising rapidly, are sceptical about the sustainability of these high numbers.

“I don’t understand how it can be like this,” a buyer said. “Shell is not the biggest player in the [PO] market, 10% is nothing. If [prices] keep going up we will not buy [the same volume of] MPG [anymore], we can use glycerine to mix with MPG for anti-freeze, [meaning] we would need less MPG.”

Sources also noted an arbitrage for Asian material may present itself if MPG prices continue firming; however there is no evidence to suggest this is currently occurring.

The price range rose to €1,375-1,500/tonne free delivered (FD) northwest Europe (NWE), the highest levels since March 2011. Prices above €1,500/tonne were also quoted but not widely confirmed.

By Stefan Naidu