Europe converters bemoan lack of investment in polymer industry

LONDON (ICIS)–European polyethylene (PE) and polypropylene (PP) buyers are frustrated at the lack of investment in European industry assets that has led to a series of force majeures, a lack of product and soaring prices across Europe, several said on Friday.

“We have contracts,” said one buyer. “Performance should be part of that contract.”

Spot prices of both PE and PP have soared as assets have been affected by unplanned outages. Problems have often been associated with upstream cracker issues, as well as technical problems at the polymer level.

“They [converters] need to distinguish between olefins and the polymer situation,” said a producer. “… It goes back to economics in the supply chain. Producers need sustainable profit. There needs to be a rebalancing. It has happened because of lower oil, but is it sustainable?”

Recent significant force majeures on PE and PP were down to cracker issues, including Versalis’s PE force majeure from Dunkirk, France, and Borealis’s restrictions at Schwechat, Austria.

The outage of Repsol’s Tarragona cracker in Spain was said to be leading to tightness in PE and PP at the site, but force majeure has not been called, said sources.

Two new cases of force majeure called this week, on high density polyethylene (HDPE) from Repsols’s Sines site in Portugal, and SABIC’s Wilton, UK, low density polyethylene (LDPE) plant, were not thought to be linked to monomer.

Product has been tight for some while in Europe.

Low prices, particularly in dollar terms as the euro weakened against that currency, left imports unworkable, but export opportunities strong. Demand in Europe was poor on the constant expectation of ever-decreasing prices on crude oil weakness, but returned in March when crude oil prices rose, and PE and PP supply tightened quickly.

Since that time, an unprecedented series of production problems, coupled with strong demand, has led to tightness, on both ethylene and PE, and prices have soared.

Buyers and sellers have been involved in recriminations, with buyers blaming producers for not being able to supply, and producers citing permanent plant closures in Europe as buyers courted importers with more attractive prices.

Some trade associations are said to be calling for record high margins to be reinvested in European assets to avoid repetition of the current situation.

One producer has said it would need to retain some of the margin gained in 2015, to be able to do that, and at the moment buyers agree, as long as they can get hold of their product.

Some sellers ponder over how long or short memories will be once the trend turns.

PE and PP are used in packaging, the manufacture of household goods, while PE is also used in the agricultural industry and PP in automotive.