Global PP prices rising as all-consuming India drains supply

LONDON (ICIS)–There was a common thread of conversation taking place across some of the world’s polypropylene (PP) markets this week in Turkey, Africa and even Europe, which was ‘where has all the PP gone?’

Many players in the African and Turkish markets were finding it increasingly hard to secure PP supply from producers in the Middle East and Iran who were happily shipping product across Arabian Sea to India and Pakistan.

Indian prices are on the up, especially for certain grades like block copolymer, which has seen an increase of $300/tonne since the beginning of the year.

India block copolymer CFR prices vs. North Africa CFR and Turkey raffia CFR

Middle Eastern producers have hiked PP price offers in Turkey and Africa, while limiting exports to Europe in favour of the Indian and Pakistan markets where prices are surging and demand remains buoyant.

Middle Eastern producers have been targeting offers of up to $120/tonne over March levels for some PP grades in Turkey and Africa because of tight supply caused by attractive arbitrage opportunities south Asia.

It certainly appears to be the time of the PP producers right now.

“Business is booming!” a Middle Eastern PP producer said this week.

“People are requesting materials from all suppliers. PP is tight for all regions, not just the Middle East [and prices are not] even impacted by the oil drop,” the producer said.

The current lack of PP was echoed by almost every market participant in Africa and Turkey this week.

A second Middle Eastern producer said it was not offering raffia to Turkey, and was not accepting any bids below $1,130/tonne CFR (cost and freight) for its fibre, copolymer and BOPP grades because it can get better prices in India.

“Raffia, we are not doing anything. Fibre we have done at $1,130 CFR Turkey, but in India at $1,150/tonne CFR. If [Turkish buyers] don’t accept, we don’t sell,” the producer said.

“PP is really very tight at the moment. There is not much product available across the region. Not sure how firm demand is, but in terms of availability, there is concern,” an Indian producer said on Thursday.

Buyers and traders in Turkey and Africa have seen prices rise over the last two weeks and it appears clear that the period of low PP prices seen in the first quarter of the year is well and truly over.

“PP was very short last month and we got a lot of enquires mid-to-end March as producers may have stopped orders and material was lacking in the field. This month we feel demand is there and even if the price increases a lot, [buyers] are still buying,” a trader serving the North African market said.

And it is not just the Turkish and African markets that are feeling the effect of the tightening of PP supply.

Buyers in Europe are facing hikes above that of the April feedstock propylene increase as exports into the region dry up ahead of a series of planned maintenance outages among European producers.

European sellers are informing customers of new prices for April, and most are targeting increases stronger than the €60/tonne hike of the April propylene contract, European buyers said on Wednesday.

“They [producers] want more than the increase in monomer,” said one buyer.

“At this point it looks like they [sellers] will be able to increase the spread [between monomer and polymer],” said another.

Supply of some grades in Europe is tight, but some converters said they have faced no issues and aim to take a maximum of plus €60/tonne in April.

One producer said it was asking for a monomer spread increase to reign in the strong demand that has led to the tightness in some of the grades in Europe.

Few sources could explain why recent figures for Europe were said to have shown 2015 demand to be running at plus 6% over 2014, and first-quarter 2016 growth was running even higher than last year.

PP prices have been rising in Europe in recent weeks, but a similar price trend in Asia has led to a situation where imports from areas such as the Middle East would see Asia as a preferred destination of choice for PP exports.

While a similar situation occurred in 2015 in Europe, heralding a crisis in the market for several reasons, sources did not expect the same to happen in 2016.

Product tightness at present was caused mainly because of planned maintenance outages, rather than unplanned issues, and some buyers said they had managed to build a little stock, which was not the case in 2015.

However, India’s apparent hunger for PP may not be sustained for much longer as converters in the country move closer to replenishing depleted stocks at the same time as the country starts to impose anti-dumping duty on PP imports from Singapore.

Looking further ahead, there may also be a ‘new’ export market that Saudi producers will want to explore – across the Atlantic in America, although this could be at the detriment to other regions including Turkey and Africa.

US January PP imports skyrocketed by 77% on higher domestic prices in a tight market, according to government data obtained in March. The data shows 2016 year-to-date exports from Saudi sitting at 3,584 tonnes, while year-to-date exports in 2015 were just 264 tonnes. Total imports into the US rose from 13,180 tonnes in January 2015 to 23,385 tonnes in January 2016.

Data from the US International Trade Commission (ITC) showed that the US domestic PP market had less to send overseas during the year as exports fell almost 7,900 tonnes, requiring foreign sources to satisfy demand.

The gain in imports, while representing not quite 4% of total production, stems from tight supply in the US for most of 2015. During January 2015, imports accounted for only 2% of production, according to industry data.

US PP values now easily run 20 cents/lb higher than those in Asia and China on most grades.

PP imports rose steadily throughout the year as producers saved on plunging propylene, the major feedstock. Producers extracted more margin from customers in nearly every month last year.

Many PP observers called 2015 a career-year for the polymer because of the feedstock plunge and producers’ focus on adding to their margins.

While shale gas in the US is leading to a raft of polyethylene (PE) expansions in the coming years, PP supply in the US will tighten and the market will rely increasingly on imported PP material. How much of this will be diverted from other regions is yet to be seen.

But in the immediate future, buyers in Turkey, Africa and also Europe will be keeping watch on what India is doing, and hoping that Indian appetite for PP will soon be satisfied and prices may return to more acceptable – in buyers’ eyes – levels.

Focus article by Matt Tudball, Linda Naylor and Lane Kelly