Focus article by Heidi Finch.
LONDON (ICIS)--European polyol contract prices are likely to be stable to firmer in August, despite some feedstock cost relief and lower summer demand, due to reduced polyol supply and sellers’ ongoing need for margin recovery, market players said on Tuesday.
Players said that news of the €20/tonne reduction in the August upstream propylene contract price and €15/tonne decrease in the upstream August ethylene contract price have had no effect on polyol pricing in August so far, and they expect this to remain the case.
Sellers refer to the feedstock increases over previous months that they have not been able to pass on, particularly for propylene, and therefore they are looking for feedstock relief in August as means of recovering margins.
In addition, some buying and selling sources said that polyol prices are more likely to be driven by market factors rather than feedstocks, in view of the recent explosion and fire at an upstream propylene oxide (PO)/styrene monomer (SM) plant at Moerdijk, in the Netherlands, operated by a Shell/BASF joint venture. PO is a main feedstock for polyols.
A few main sellers said they had already booked some flexible polyols business for August and achieved some increases of €50-70/tonne, depending on starting point and what level of increase had been implemented in July.
One key producer said it had secured price rises of €50-70/tonne for its lower-priced business in August when compared to July. Another manufacturer said it had secured plus €60/tonne for its August polyol business on the back of limited supply.
Another supplier said it had achieved a total price rise of €100/tonne for its July and August business combined, but acknowledged that its August business ranged from rollovers to plus €50/tonne, depending on the magnitude of increase it had passed on in July.
Other sellers confirmed more modest price rises of €10-20/tonne for flexible polyols in August, a few of which conceded that price rollovers were most realistic in August, albeit with some modest selective rises, depending on starting point.
One of the sellers conceded that price rises had been difficult to achieve in August, and that any price rises were limited because of the feedstock cost relief and quieter summer holiday period.
There was some talk that some suppliers were prepared to keep prices relatively steady in August, with any increases being postponed until September and after the holidays.
Buying sources so far said they had agreed rollovers and increases of €10-15/tonne, although one source also confirmed close to plus €50/tonne in August, as a firm producer stance for supply and margin-related reasons was being weighed against a quieter summer holiday period and what price rises had already been implemented in July. One main customer said it had agreed to rollovers and price rises of €10-15/tonne in August, stating that it had seen the larger upward price pressure in July.
Another customer said it had received offers at plus €30-50/tonne for flexible polyols in August and, while it is still in discussions, it conceded some upward price movement was likely as a result of a generally firm price initiative among sellers and reduced availability.
One customer said it had secured price rollovers because it already had two monthly and quarterly contracts in place, which meant these prices would remain stable into August. However, there was no seller confirmation to substantiate these longer term flexible polyol contracts.
For rigid polyols, both buying and selling sources said that price rises were less likely to be achieved when compared to flexible polyols, as either two monthly contracts had been fixed to cover the summer holidays or quarterly contracts were already in place.
One buyer, who typically purchases rigid specialty polyols, said it expects stable prices in August due to a number of market player absences during the summer holidays. Another specialty buyer said its prices are likely to remain steady into August, after having recently fixed its business for the third quarter.
Consumption is generally slower for both flexible and rigid grades because of the quieter summer holiday period. Ongoing economic constraints were also limiting demand to an extent in some end-markets such as bedding and furniture and construction in parts of Europe, according to sources.
Despite this, one producer said its order intake was good in July and initial demand indications for August were also encouraging. The same source stated it had not seen any evidence of a summer lull in activity, although it acknowledged this is likely to be more supply-related on the back of the PO plant disruption at Moerdijk.
While European polyols supply is reduced, largely because of the PO/SM plant problems in Moerdijk, this supply limitation is being mitigated to some extent by lower demand during the summer holidays. The market is generally described as balanced, although with a tendency towards tightness.
European flexible slabstock conventional polyol prices were assessed in July at €1,780-1,870/tonne FD NWE, and sucrose base rigid polyol prices also in July were at €1,970-2,030/tonne FD, according to ICIS.