Europe PP buyers reluctant to pay more but sellers also headstrong

LONDON (ICIS)–Polypropylene (PP) sellers in Europe are facing resistance when it comes to price hikes for November, but they too are resisting any attempt by buyers to avoid hikes, according to market sources on Monday.

The November propylene contract increased by €30/tonne, and producers are keen to recover this hike, if only partially.

By Friday 4 November, only UK buyers were fully confirmed to have paid increases – more than their European counterparts in many cases – as the pound was volatile against the euro. Holidays in mainland Europe meant that business was slow to start, but resistance to pay higher prices also led to reluctance to settle early at freely-negotiated accounts.

“My management has told me not to accept any increase at all [for November],” said one buyer.

This stance, however, was looking unlikely to get results, and at propylene-linked PP accounts, prices would automatically rise by €30/tonne.

On Monday plus €15-25/tonne was looking realistic for many buyers, with the starting-point of discussions playing a role in where final November prices would land.

Behind these monthly price discussions lurked the bad-tempered 2017 pricing discussions, and some sources saw this behind the resistance from buyers in November pricing talks.  It would be hard for buyers to reject less advantageous pricing settlements for 2017 after simply accepting November hikes without a word, they said.

Producers were generally looking for a wider propylene (C3)/PP spread in C3-plus contracts for 2017. This had already risen sharply for 2016, and sellers were looking for more in 2017.

This has led to a lot of resentment from buyers who see improved monomer/polymer spread, compare with 2015 levels.

The spread between monomer and polymer at freely-negotiated accounts is now at its lowest level since October 2015, but the spread remains much higher than at the end of 2014.

The above chart shows ICIS low-end FD (free delivered) EU gross homopolymer injection prices compared with the prevailing propylene monomer contract price.

While there is no shortage of PP in the European market at present, export activity was strengthening, and low prices in Europe meant that importers would be sending material to regions with more profitable netbacks than Europe.

“I spoke to my suppliers last week and they are really pushing for 2017,” said a large buyer. “We are simply not able to accept the increases they are asking for. Our margins are very poor.”

“We had long discussions at the K Fair,” said another buyer, “and they [producers] didn’t change their minds.”

Discussions would be continuing in the coming weeks, and most PP buyers had to ensure they would have enough contractual product for 2017, mindful of shortages in 2015 that closed production lines.

“All our volumes are placed for 2017,” said one large PP producer.

“If you are in PP and relying on spot, you’re in trouble for big volumes,” admitted one of the buyers.

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