Hikes of up to €200/tonne sought for Europe April PP

LONDON (ICIS)–Polypropylene (PP) producers are looking for increases in April, and are talking big hikes – one by as much as €200/tonne, or around 16%, sources said on Monday.

“We will see record prices,” said a producer. “Absolutely everything is pointing towards price improvement.”

Prices still have some way to go before reaching a record high, which was around €1,400/tonne FD (free delivered) NWE (northwest Europe) on a net basis in March 2011. Net spot prices are around €1,250-1,300/tonne FD NWE at present, but sources expect them to increase in the coming days and weeks, as availability is tight. If a €200/tonne hike becomes reality, however, this could happen.

Not all producers are looking for such a hike. Another is talking of plus €170/tonne, while a third said it would target increases of €50-100/tonne on top of whatever increase the upstream April propylene contract brings.

There has been no propylene settlement for next month yet, but sources talk of the potential for an increase when it is settled in the coming days.

Tightness in the PP sector was already in evidence in February, as a couple of cases of force majeure and some propylene issues here and there affected output. Some new cases of force majeure, coupled with tight inventory control by both buyers and sellers, has led to an upturn in demand that has left stocks depleted across the board.

All sources, both buyers and sellers, are preparing for higher prices in April.

Last week LyondellBasell sent a letter to its customers informing them of the tight supply situation the company was experiencing.

“…we find it necessary to prioritize the supply of many of our products in order to maintain continuity for our contractual and regular buying customers,” said the letter. “Therefore, with immediate effect, acceptance of new orders will be subject to review of product availability, with priority given to your orders in line with contractual relationship, historical requirements and price.

“Orders already placed which are above minimum contractual quantities and/or normal historical levels may be subject to cancellation.”

Several buyers said they were already experiencing difficulty with supply and a tough stance from non-contractual sellers. “March was OK,” said one. But April is proving difficult.”

The buyer went on to say that regular spot suppliers were no longer willing or able to supply, and priority would be for contractual customers.

Exports were often more profitable than selling into Europe, sellers had been told. Buyers have had little alternative but to go to European suppliers, as traders have barely any product because offers are too high and the euro has weakened so much against the dollar.

Some sources were hopeful that higher prices in Europe would attract new imports, but this was not a given, according to some sources.

“There is a further angle to all this,” said a supplier. “Asia is also going up.”

Traditional Middle Eastern suppliers prefer to sell to Asia than to Europe, particularly now that the import duty to both regions is the same, so if prices continue to climb in Asia as well as Europe, Asia is expected to remain the preferred destination for those sellers.

The propylene April contract is expected imminently, and so will provide a more definite platform for April PP prices.

PP is used widely in packaging, the manufacture of household goods and also in the automotive industry.