Europe PP spot prices at three-month low

Linda Naylor

27-Jul-2015

price in declineLONDON (ICIS)–European polypropylene (PP) spot prices are trading at a three-month low, and while July contracted prices are down they have not fallen by as much as spot.

Spot PP homopolymer injection commodity prices are now trading at €1,250-1,300/tonne FD (free delivered) NWE (northwest Europe), from a high of close to €1,500/tonne at the end of May. Some regions even saw levels above €1,500/tonne for some grades.

Prices have fallen in recent weeks as production difficulties have eased and imports are being offered into Europe. Some buyers have also managed to build up some stock following a very tight inventory situation earlier in 2015 when several cases of force majeure hit supply.

“We have begun to see spot offers that would have been completely out of the market not long ago,” said a distributor. “Some sellers are under pressure to get rid of inventory.”

Expectations of a lower propylene monomer contract in August was affecting current spot prices, and although inventories are not high in many PP grades, most sources were aware that August contracted pricing would be lower than July.

“They’ve [producers] had a good ride for six months,” said a buyer who expected to be able to take advantage of lower prices in August.

Producers’ margins have been very strong in 2015, on tightness caused by the lack of imports, strong exports and force majeures, and many sources began to ponder over when margins would begin to erode.

PP contracted prices in 2015 have risen well above monomer, but July saw contracted PP prices fall by more than the €20/tonne drop in the monomer contract in many cases.

As other regions saw PP prices fall, many sources expected the downward trend to continue in Europe, and while some producers acknowledged that this would be the case, at least one was informing its customers that it would not allow the full margin gained in 2015 disappear.

Several representations to the EU have been made by converters’ associations to highlight frustrations experienced by converters unable to get all the polymer they needed to run their lines this year.

“Long term investment by polymer producers in Europe is desperately required as the producers are presently unable to meet local market requirements,” said one such group in a recent open letter.

One reason put forward for the unprecedented number of force majeures in the polyethylene (PE) and PP markets in 2015 has been that plants have not been maintained to run at full capacity, as buyers were able to source product from low-cost regions so that European volumes were not needed.

As soon as plants began to run flat out, they began to fail, conjectured some sources, leaving the market short of product as importers found better netbacks in other regions.

Polymer margins had been very weak, to the point where one high density polyethylene (HDPE) producer said the first time it had made any profit since 2008 was in September 2014.

Since then margins on PE and PP have been improving, but higher PP prices are now attracting imports, particularly as other regions, including China, soften.

Sources speculated that European PP producers’ margins depended very much on exchange rates in the coming months, as a weak euro would continue to limit imports.

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

Focus article by Linda Naylor

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