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Bleak outlook for Q1 keeps European PP, PE buyers sidelined

by Manolya Tufan - mtufan@chemorbis.com
  • 28/11/2022 (08:52)
The bleak outlook comes as Europe’s polyolefin markets offer no glimmer of hope amid economic downturn and high energy costs despite vigorous efforts to rebalance supply levels. Meanwhile, a potential influx of import cargoes weighs on the Q1 outlook as overseas cargoes are expected to be calling at European ports early next year.

Back in October, manufacturers secured some stocks in case of tighter supplies following run rate cuts across the board. Hence, resin requirements remained low in November. December is widely expected to be a transition month, with less volumes being transacted. Buyers want to close the year with low stocks as muted demand and the expected arrival of imports would set the stage for a decrease in Q1 2023.

“Polyolefin buyers would rush to replenish their stocks, which are running down, if they believed in a recovery in January-February. The main issue is demand. There wouldn’t be a rebound even if we stop entirely. Plus, it will take time to reach normal capacity utilization rates amid demand destruction and additional production capacity largely from the US and China,” said a global producer.

Only LDPE manages to notch an increase

PE markets reversed direction in October after 5 straight months of drops, with only LDPE prices posting a meaningful increase. Other PE grades have mostly moved sideways in October and November as any hike attempts were met with buyers’ resistance. PE supplies other than LDPE were comfortable as arriving imports counterbalanced production hiccups, not to mention poor buying interest .

Now what lies ahead for PE?

Stable expectations are voiced for December despite it being a short month. Purchasing volumes will probably be low even if sellers cut prices, a player argued. Elaborating further, he added, “We aim to avoid reductions as they won’t spur buying interest. Buyers buy negligible tonnages amid the negative demand outlook for the first quarter of 2023.”

Still, year-end discounts are not ruled out if sellers feel sales pressure. Plus, ethylene expectations call for slight drops. Some participants even argued that LDPE tightness may ease due to the return of import supplies and regional capacities. Total PC lifted the force majeure on its LDPE output from France after the end of strikes, as a side note.

PE markets remain under the pressure of a bearish cocktail of factors heading towards Q1. Players concurred that commodity markets will make a slow start to next year as end businesses will be struggling with low order entries amid recession fears and high energy costs. Apart from that, slumping freight rates, piling stocks at US ports amid new capacities and juicy netbacks in Europe seem promising for the continuity of import flow, particularly from the US, to the bloc.

Europe’s PE imports from US see a record-high

Indeed, US PE exports to Europe hit more than 1.2 million tons in January-October period, almost catching the full exports of the previous year. Europe has a share of more than 16% in the overall exports of the US. Belgium formed more than half of US PE exports to Europe, followed by Spain (20% ).

Considering the aggressive US PE offers across Europe throughout October and November, it would not be surprising to see a new record in PE imports from the US .

According to ChemOrbis Production News Pro, around 2 million tons of HDPE capacity- including swing lines- came online in the US in November. Meanwhile, more than 3 million tons of new HDPE capacity is slated to be introduced in December 2022. A new LDPE capacity of 300,000 tons/year is also expected next month.

PP draws a weaker scene

PP prices staged a rebound after coming out of the trough in October. However, November hikes were mostly revised down to rollovers. PP demand has been weaker than PE as downstream sectors including automotive and other durable applications were affected the most by the cost-of-living crisis.

Disciplined rate cuts led to reduced availability for certain grades, which was counterbalanced by weak demand. In December, prices may move sideways or rather be prone to additional drops amid destocking activities and potentially lower propylene settlement. High stocks in the distribution channel may also trigger special deals for non-European materials.

Projections are not optimistic for this product as well, since the global economic slowdown is expected to continue into early Q1. Manufacturers are skipping purchases due to a lack of confidence in the demand outlook, not to mention high utility costs narrowing their already-tight margins. Several converters expect end demand to remain weak in Q1 2023.

So long as global markets remain in the grip of economic downturn, import material will always be an option for European buyers with new capacities coming onstream as demand is not picking up.

As for PP, global markets will need time to digest new capacities particularly from China, considering the extent of it. In November, 1.1 million tons of new PP capacity came online in Central Asia and China. Around 1.7 million tons of PP capacity is also slated to come online in December, around 75% of which is located in China and 25% in the United States.

For more detailed production news on plant and producer basis, please visit ChemOrbis Production News Pro Tool.
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