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Europe’s polymer markets impervious to surging freight rates amid weak fundamentals

by Manolya Tufan -
  • 30/05/2024 (02:40)
Regional polymer markets are torn between rising shipping costs and subdued market fundamentals as June approaches. The sentiment for most polymers has barely changed given chronic adversities, even though import prices saw some increases driven by surging freight costs. We will delve into the reasons behind the polymer markets’ indifference to the soaring ocean freight rates and accompanying import supply disruptions.

Navigating turbulent waters

The global shipping industry has been under the pressure of unprecedented challenges including the ongoing Red Sea disruption and bottlenecks caused by blank sailings, propelling freight rates higher and plaguing import flow to the bloc. As industries heavily rely on efficient supply chains in a robust market, such upheavals in the shipping industry and prolonged delivery times would be enough to keep players on their toes.

Polymer markets in Europe have proven unfazed so far despite formidable challenges, however. Demand across many derivative sectors from food packaging to automotive and construction has been persistently slow amid economic uncertainties, translating into reduced demand for polymers. Manufacturing is optimized in Europe, which allows converters to manage inventories and mitigate the impact of rising freight costs and risks associated with delivery delays.

A lack of major supply concerns ahead of the approaching summer holidays in Europe has further dampened the market’s reaction to the cost fluctuations. Buyers have no rush to stock up material from the local or import markets despite reduced capacities at petrochemical plants.

PET may be quick to respond

PET suppliers are cautiously optimistic about June given imports losing their competitiveness. Players underscored that higher freight rates are having an impact on the market, and they are believed to lead to hike attempts from European producers in June.

A trader said, “The main issue is the lack of booking space on vessels, and this will support European suppliers in late Q2 and early Q3.”

PET markets will see renewed hike requests in June after following a stable to slightly firmer trend in May, driven by their dependence on imports of both PET and feedstocks from Asia. A lack of competitive import offers and buyers’ reluctance to purchase them amid higher freight rates would also support local demand, as was the case in May. Yet, if demand remains stable despite seasonal patterns, it may put a cap on producers’ efforts to recoup their margins.

June expectations for PP, PE still soft

Fresh offers for new shipments were still pending amid bullish expectations particularly for PP given shipment issues from South Korea and long lead times from Saudi Arabia. Although sellers do not rule out rollovers as rising freight rates will pull import offers up, buyers expect to see further discounts on the spot ranges amid lower monomer expectations and weak market conditions. Even end users are sidelined ahead of potential decreases.

Buyers point to the sufficient availability, which reinforced their bargaining power in deals during May. This may pave the way for larger drops than the monomers’ outcome in June, as has been the case this month. Aggressive non-European origins will most probably fade when fresh offers emerge higher, which is expected to ease the pressure on local producers.

Some players said, “Drops of around €50/ton may be seen amid lower costs and weak fundamentals. Buyers are not engaging in distant cargos as they have no visibility with regards to their order entries ahead of the summer period. Offers on the high ends will be revised, while prices on the low ends will see only minor variations.”

A tug of war likely between ABS buyers and sellers; PS is weaker

European suppliers might attempt to avoid drops as imports may increase further amid rising freight rates in June, narrowing the gap with the local ranges. Unattractive import pricing and long lead times may render the local market more favorable and support demand to some extent, underpinning prices. Buyers also shun imports due to the late delivery terms in July or August, coinciding with summer holidays.

Although buyers expect ABS prices to see downward corrections in the face of lethargic demand, a few suppliers think that the ABS market may be resilient despite the challenging demand situation in downstream sectors.

A player argued, “No further decreases likely for ABS as supply is in balance with low demand given reduced output within the bloc. Plus, June butadiene settled slightly higher.”

The prevailing sentiment for PS exhibits fragility though as prices are expected to extend losses into the second month in June amid lower styrene expectations. This view is also supported by poor market conditions as the anticipated tightening of market conditions has yet to materialize despite prevailing production hiccups.

Although packaging demand has been slightly better, it has remained below the previous years. Where feasible, converters switched to more sustainable products in the disposable sector amid heightened environmental awareness and regulatory measures aimed at reducing plastic waste, curbing PS consumption.

“Expectations call for decreases on both styrene contracts and spot PS ranges. Producers may not follow styrene drops but apply larger discounts as sales volumes are low,” said a distributor.

PVC caught between anemic demand and tight producer margins

Competition among local suppliers brought PVC prices down this month despite reduced import flow and tight producer margins. It has been a while since traders stopped securing fresh US PVC cargos amid the ongoing antidumping probe, while US PVC was diverted to other outlets that have rebounded. The European Commission is anticipated to decide on a potential provisional duty on US and Egyptian PVC by mid-June, with the possibility of implementation within a month thereafter. Still, this approach did little to avoid ample availability in the region given lower sales volumes.

Despite seasonal patterns, demand in all derivative sectors has been lower, with no signs of recovery any time soon. End users wait on the sidelines to see further drops on PVC prices, while aggressive end-product prices also affect the PVC sentiment. Some players point to September, when prices may rebound amid reduced import flow and a potential pickup in demand may ensue.

Although poor market conditions and lower ethylene expectations weigh on the June outlook, PVC producers are targeting rollovers as a start, citing razor-thin producer margins. They also underlined that export prices rose by $30-50/ton given rising freight rates. A player reported, “If suppliers export more in June, there will be less pressure on the spot market.”

What’s ahead?

A cautious equilibrium will probably dominate markets in the short term as it is essential to see resurgent demand for the market to regain its strength, which heavily relies on the overall economic climate. As long as demand remains muted and supply adequate, the impact of rising shipping costs will be minimal.

However, the Red Sea crisis that is likely to extend until the year end will eventually lead to tighter import availability, compounding the challenges faced by the industry participants. While the market may seem less affected at present, it is not shielded from potential effects of logistics crisis down the line considering Europe’s growing dependence on imports.
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