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Coronavirus blurs outlook in European polymer markets

by Manolya Tufan -
  • 02/03/2020 (10:42)
The spread of the coronavirus across Europe was the hot topic in the polymer markets last week, with Italy emerging as a new epicenter of the rapidly spreading illness. Although there has been no tangible impact on the near-term projections so far, economic concerns stemming from lower consumption have heightened.

European players keep a close eye on the imminent impact of the virus, with some petrochemical companies asking their staff to work from home to contain the outbreak.

Italy’s Eni assures operations are ongoing

According to local media sources, Italian oil major Eni asked its employees at San Donato Milanese and Milan to work from home until March 6 due to the COVID-19 outbreak. Still, operations in northern Italy were still ongoing normally, market sources reported.

March ethylene, propylene settled lower

Lower crude oil and spot naphtha prices put pressure on contract negotiations for monomers. Meanwhile, March ethylene and propylene contracts settled with respective drops of €50/ton and €20/ton.

Tight supplies for propylene are believed to have kept decreases in check.

When it comes to ethylene, lengthy supplies amid weak derivative demand weighed on spot prices during February. Rate cuts at crackers were brought into question to avoid supply glut and cope with possible demand destruction, according to market sources.

Sharp benzene drop weighs on styrene negotiations

Styrene contracts are also awaited to post remarkable drops for March. This is due in part to sharp drops of €147/ton in March benzene contracts. ChemOrbis Price Wizard reveals cumulative drops of more than $85/ton for spot styrene on FOB NWE basis and $110/ton for benzene on CIF NWE basis since early February.

PP, PE producers mull over rollovers despite cost pressure

However, these factors have yet to affect players’ expectations. Polyolefin producers were already mulling over rollovers in March regardless of the outcome of monomer contracts.

Distributors said that PP producers may issue rollovers for another month to hinder a downtrend in March. Projections to see an improvement in demand due to the high season for some applications may also prop up prices, players argued.

Similarly, PE producers are believed to approach the market with rollovers on the back of their margin recovery targets. The low ends of price ranges for most PE grades are close to the €900/ton on local terms.

However, whether or not a stable trend can be maintained in March is yet to be seen amidst global recession concerns due to COVID-19. Buyers believe that suppliers may slash prices to encourage sales.

A packaging manufacturer reported, “Our end-product business is slow and we foresee lower PE prices for March amid lower energy costs and widespread uncertainties about the coronavirus outbreak in Italy, which is likely to have an impact on overall economy in the medium term.”

March PVC expectations even call for hikes

PVC sellers reported that they may keep their prices flat or even hike them despite drops in the ethylene settlement. Some of them point to the limited import offers and disrupted supplies from regional producers. Plus, the seasonality may support producers’ modest hike requests, a major player opined.

Nevertheless, buyers are likely to resist any hike attempts especially if demand shows no recovery. Some converters even think that they can ask for slight discounts later in the month.

Pressure on PET, PS markets more visible due to plastic tax

Tax on plastic packaging has already taken its toll on relevant industries, with the most visible impact on disposables. Demand concerns were exacerbated due to the rapidly spreading illness.

PET producers are willing to avoid price drops despite weaker costs . Buyers are not hopeful about the near term outlook, though. One of them said, “Travel curbs due to the COVID-19 led to many flight cancellations. Our demand is prone to weakening as we mainly work with airlines.”

March expectations are mainly weaker for PS as supplies are more than comfortable and demand is weak. Styrene contracts are also expected to settle with visible drops of €50-80/ton.

A packager said, “March will be a month of drops. Still, producers may lower operation rates to keep supplies in check.”

A major market player reported, “Some customers reported logistical issues due to the spread of coronavirus in Italy. It may require a quarantine period. We expect to see up to three-digit drops in the styrene settlement while PS may drop by €50-70/ton. Virus in Italy and Europe may put further downward pressure on local markets.”

Automotive and tourism sectors may bear brunt of virus

Apart from the ailing global economy, automotive and tourism sectors are expected to be affected more visibly with travel curbs. Demand has been weak for the applications in the automotive sector and the coronavirus outbreak in China weighed on the European market further.

End-buyers cannot receive vehicle parts from China amid the measures adopted to limit the virus spread and their requirements slackened accordingly, a distributor reported.

An EPS converter in Italy commented, “The coronavirus in China has affected our end demand only partially so far. Yet, the spread of COVID-19 in Italy may weigh on the local market in the near term, slowing trading activities down.”

A player lamented, “Precautions were taken to avoid the spread of the virus. However, the reaction of the markets is outrageous.”
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