Tight European propylene supply limits derivative potential overseas

FOCUS article by Nel Weddle

LONDON (ICIS)–Europe’s propylene derivatives might well be in a better position to benefit from the high cost of the US and Asian markets, but high spot prices and/or the limited availability of propylene feedstock has prevented players from taking full advantage, some market sources said on Friday.

“We are fighting hard for every molecule,” a source said. “We would like more propylene, but we are not that desperate to pay these prices.”

Europe’s relatively low-priced position versus the rest of the world has boosted domestic propylene consumption because derivatives markets have been able to step up production in the face of reduced imports and increased export opportuntities.

“We had extra demand from downstream,” a second source said. “We have really scratched the bottom of our tanks.”

It added: “They have had export possibilities that was not planned.”

European propylene supply has been persistently tight following a string of planned and unplanned production outages and hiccups – including the French strikes – at crackers and refineries over the past few months.

Increased demand has raised the pressure on supply creating a vicious circle, but there are expectations that at least some of the pressure will be alleviated once crackers are back in operation following planned maintenance.

“If [the restarts] are timely, this will bring relief,” a third source said, adding, “if not, it will be a drama.”

Tight supply has kept spot propylene prices at a premium to the prevailing contract price and several buyers have said they are simply unable to buy-in additional propylene citing unaffordability.

“Some derivatives are not having a jolly time,” the third source said. “Yes, they might make a bit more because of their competitive position, but only the polypropylene (PP) and propylene oxide (PO) [sectors] are really doing well.”

The next round of contract discussions – for October – should get under way in a couple of week’s time.

Of course, it is far too early for players to be disclosing their views regarding direction, but they are likely to be mindful that while some sources will likely seek increases on the basis of the supply and demand balance, pushing contract prices considerably higher could have a negative effect.

As another source said last week, much higher prices in Europe would send “a perfect invitation for imports and destroy derivatives.”

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