Europe chemicals players struggle with overfull inventories as offtake slows

Nicole Simpson

08-Sep-2022

LONDON (ICIS)–Players throughout the European chemicals chain are struggling with oversupply and a shortage of physical storage as consumption has been weaker than anticipated over the holiday period.

Market players in Europe usually return from summer breaks ready to place fresh orders as stocks deplete over August while downstream activity picks up in September.

This year is different on many levels. Now, players throughout the European chemicals chain are struggling to manage high inventories.

Moreover, they are faced with unforeseen slow demand and high cancellation rates, while imports and market shifts towards contracts are contributing to oversupply.

Demand outlooks are pessimistic as ongoing tensions with Russia and the ever-nearer prospect of a recession loom over the markets.

Weak demand is a global concern and sellers in regions with preferable production economics are keen to send material into northwest Europe (NWE) which is intensifying oversupply in the region.

Unpredictable cancellations, market shifts towards contracts and the loss of trade with Russia and Ukraine are making inventory management even more difficult in some markets.

“We’re getting orders postponed or cancelled and so we have to postpone orders,” commented one plasticizers buyer.

Some buyers in the European plasticizers market are unable to accept any spot material, even rejecting offers several hundred euros below the market price, as inventories are overfull.

“It’s not a matter of price but of whether the customer can take the material or not,” said one distributor.

One plasticizers buyer which typically takes 5,000 tonnes in September has no demand as stock levels are high.

“There’s enough cheap material around now that we don’t need it, and our tanks are so full we’re struggling to fit material in – it’s always how it goes,” said one plasticizers buyer.

There has been a similar picture in the acrylonitrile (ACN) market.

Many ACN customers are only taking contract minimum volumes and are not able to take advantage of lower-priced spot offers as stocks have been full or, at least, more than sufficient to cover the diminishing demand seen down the chain.

Overstock is a key challenge for players through the polyethylene (PE) and polypropylene (PP) value chain, which has led to players on both sides of the markets choosing to mutually ignore contracts.

Even when taking only contract minimum volumes, some PE and PP buyers are building stocks, although most are looking to destock.

The PE and PP markets shifted to contract volumes this year as security of supply had been a major issue in 2021.

However, downstream demand has slowed significantly.

One epichlorohydrin (ECH) buyer was not able to fit its order for east Asian imports into its tank as its inventories did not decrease to the extent it expected over the six-week delivery timeframe.

STORAGE CHALLENGES DOWNSTREAM
Oversupply and the lack of physical storage are issues that permeate the entire chemicals value chain.

“The DIY construction material store retailers are not really placing orders to the wallpaper producers as they already have too many stocks,” said one distributor.

Sellers do not only see competitively priced imports of chemicals from northeast Asia in the market, but also imports of derivatives and goods further down the value chain.

Post-production inventories increased at a record rate in August for the second month in a row, according to the latest Purchasing Managers’ Index (PMI) data.

It is a critical time for European chemicals players as demand has slowed at an unforeseen pace, energy costs soar, and inventory management challenges are adding more pressure for many through the chain.

R-PET: GROWING BEARISH
The situation has also permeated the recycled polyethylene terephthalate (R-PET) market; there has been a significant increase in the number of post-consumer PET bottles (PCB) in the recycling stream after the summer holidays.

PCB is the feedstock for R-PET flake and food-grade pellets (FGP).

PCB monthly and spot prices were at record-high levels in June, but now regional PCB prices have started to fall in the south and east European markets on the back of better availability and slower demand from the downstream flake and FGP sector.

The outlook for the R-PET September contract price is also growing more bearish.

This slowdown in demand has also seen improved availability for R-PET colourless flake across Europe, but now flake producers are faced with high conversion costs while their feedstock prices are dropping.

At the same time, flake buyers want lower prices because they also have higher stock levels, see better flake availability on the market and falling feedstock costs as well.

Plus, virgin PET bottle grade resin prices are currently over €500/tonne cheaper than colourless R-PET flake.

This means flake producers are struggling to pass these higher production costs down the value chain without squeezing already-depleted margins.

Front page picture: A storage tank at BASF’s Ludwigshafen site in Germany, Europe’s largest chemical park
Picture source: Ronald Wittek/EPA-EFE/Shutterstock

Focus article by Nicole Simpson

Additional reporting by Zubair Adam, Jane Massingham, Ben Monroe-Lake, Matt Tudball, and Nel Weddle

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