Europe PP buyers set for more hikes in May in tight market

Focus article by Linda Naylor

LONDON (ICIS)–Polypropylene (PP) buyers are bracing themselves for more price hikes in May following hefty three-digit increases at freely-negotiated accounts in April, sources said on Monday.

A very wide price range is in evidence in April and buyers of contracted material have been able to avoid some of the most excessive hikes.

Propylene-linked buyers have been able to buy at a €55/tonne increase over March, rather than the hikes that sometimes rose towards €200/tonne at freely-negotiated accounts.

“There’s a disparate price range in April,” said a producer. “There’s very little spot volume.”

“If you have a formula linked to C3 [propylene] today it’s very advantageous,” agreed a large buyer. “Today the spread is incredible.”

By the end of April, spot prices have also been talked in a wide range.

“I’ve not had any shortages, but prices are horribly expensive,” said a spot buyer. “There’s no difference between prime and off-grade.”

Spot offers for homopolymer and copolymer have been heard widely at €1,400/tonne FD (free delivered) NWE (northwest Europe), while net prices at large contracted accounts were sometimes still below €1,200/tonne FD NWE, according to some buyers.

Much depended on which grade of PP buyers were looking for. Fibre and BOPP grades are very tight, while some injection grades were available, said some buyers.

There were now some fears for downstream buyers that the lack of some PP grades were leading to line closures.

Several cases of force majeure tightened supply in April, in a market that was already struggling to supply customers’ needs. Imports have not been workable for some time, as the weak euro has made dollar-based offers too high to work and Middle Eastern sellers sell to regions with better netbacks.

The increase of import duty from GCC countries, the major exporting region for Europe, in January 2014 has meant import duties to Asia and Europe are now the same. They were at 3% to Europe, but are now at 6.5%.

Propylene availability has also tightened, and some PP output in Europe has been reduced because of this.

The weak euro also meant that exports were strong, and producers took advantage of this when European demand was soft at the beginning of the year.

The May propylene contract is expected to settle higher this week. While the link between propylene and PP has weakened in the past couple of months, and monomer and polymer prices have diverged, any increase upstream will inevitably have an impact on PP pricing, and the tight supply/demand balance is expected to push PP prices higher than any increase in the monomer contract.

“We’ve been running for four months with strong demand,” said another producer. “Production is high and stocks are depleted. May is a done deal.”

Sources began to ask how long the current situation could last.

“I had really the feeling that some relief was coming a couple of weeks ago,” said one of the buyers. “So far we are running all the lines, but with our current commitment, we might have to buy spot for June.”

“June will be the same,” said the second producer, “but things will ease in the summer months.”

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