EPCA’16: Supply the focus for Europe's propylene players

01 October 2016 11:00 Source:ICIS News

CrackerBUDAPEST (ICIS)--As players in Europe’s propylene market gather for the 50th annual European Petrochemical Association (EPCA) meeting, much of the focus will be on supply conditions for the remainder of the year, expectations for 2017 and their impact on spot and contract pricing following what has proved to be a fairly tumultuous 18 months.

In 2015, a string of well-documented unprecedented production outages left supply tight and European prices the highest globally, putting many propylene derivative sectors under pressure as they were unable to compete in their respective global arenas.

Derivative players - largely those from the non-polymer sectors - reduced propylene consumption leaving the market so long at one point that spot prices were as much as 40-45% below the prevailing contract price.

With expectations of length developing in the US and Asia as a result of new propylene production capacity due online in 2016, and together with what looked to be a thinner scheduled maintenance slate, players could be forgiven for anticipating ongoing length in the market this year.

However, due to another set of planned and unplanned issues - not least the French strikes - and the failure of new capacity abroad to either start up on time or struggle to run at high rates, global propylene supply is much tighter than expected.

European spot prices reached double-digit premiums, and import cargoes were fixed at much higher levels relative to the contract, which remained low in global terms.

Uncertainties over global operating rates in 2017, in conjunction with signs that the cracker turnaround schedule next year will be heavier than this year, may be giving propylene sellers the idea that they have the upper hand when it comes to negotiating new contract terms and conditions. 

A particular crunch point for maintenance is coming in the March-May period 

The heavier maintenance slate predicted for 2017 is also leading some players to believe that turnaround preparations both at the cracker and derivative level will stave off any real seasonal slowdown in demand for year-end inventory control reasons.

Therefore, some players expect  the fourth quarter should still look at the very least to be balanced but potentially tight.

Many believe Europe’s propylene supply will be on a short leash in the near- to medium-term, with some crackers converting to ethane and output from refineries slowing.

Borealis’ recent announcement of plans to study the feasilibility of a new 740,000 tonne/year propane dehydrogenation (PDH) unit at its Kallo, Belgium, site, which would start up in 2021, reflects this view.

Meanhile, Poland’s ZChP’s 400,000 tonne/year PDH project has been delayed following a change in management in February. Construction was previously expected to begin in the first half of this year and no new dates have been given.

“Currently [ZChP subsidiary] PDH Polska S.A. is proceeding with FEED [front-end engineering and design] documentation for both the process units part and the harbour and storage facilities part,” said a company spokesperson in September.

The only bright spot for non-polymer derivative producers is that low European prices relative to the rest of the world has afforded an improvement in European export possibilities.

Given the ups and downs of the past 18 months, it seems that whatever the supply landscape looks like, appropriate and agile pricing remains key. European prices need to keep pace with the global market developments while at the same time maintaining derivatives’ competitiveness abroad.

The difficulty in achieving this is perhaps why there has been more wrangling over contract prices this year, the latest process to determine October's contract price a case in point. A similar situation had occurred in June.

European prices should keep pace with the global market developments while maintaining derivatives competitiveness abroad.

The annual EPCA meeting runs from 1-4 October.

Focus article by Nel Weddle

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By Nel Weddle