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European PP, PE lose premium over global markets, what lies ahead?

by Manolya Tufan -
  • 19/09/2022 (02:35)
Regional PP and PE markets have been trading at a historic premium over other global markets including China, Southeast Asia and Turkey since H2 2021. However, Europe’s premium over these markets has visibly narrowed as polyolefin markets have seen strong drops in the past 5 months in line with the global downtrend.

Players are now discussing how things will evolve amid opposing factors. With lower run rates at regional producers, some voiced their concerns over availability. Others, however, pointed to the demand jitters across the board that could shatter the hopes to see a rebalancing market going ahead.

Prices lose 30-40% since May

Having reversed direction in May, PP prices lost around €850-900/ton or 40% both in Italy and West Europe. Prices hit their lowest levels in 20 months, ChemOrbis Price Index revealed.
PE markets also witnessed strong drops in the past 5 months. Spot prices decreased by around €750/ton for LDPE film, €600-650/ton for LLDPE C4 film and €550/ton for HDPE film since May. After falling by around 30-35%, PE film prices hit their lowest levels since February 2021.

Regional price differences somewhat normalize

Europe traditionally carries a premium over other markets as prices are for prompt cargoes including all applicable duties and delivery costs. However, import prices in major global markets are on CIF, cash terms, not including any customs clearance and inland transportation costs.

Europe’s premium over other major markets reached its tipping point back in June 2021, when a combination of pent-up demand and supply chain disruptions pushed prices to record highs and highlighted regional differences.

By around June 2021, European PPH market was trading at a premium over China ($1450/ton), Southeast Asia ($1330/ton) and Turkey ($1300/ton). As can be seen on the graph below, spot prices in Europe have started to lose their premium over global markets since around April. In the week ending September 16, price differentials between Europe and these regions have somewhat normalized as they stand respectively at $395/ton, $275/ton and $245/ton. These gaps marked their lowest point since Q1 2021.

FD NWE–CIF–Turkey–China–Southeast Asia–PPH

When it comes to PE, the scene was no different. ChemOrbis Price Indexes reveal that the USD equivalence of last week’s spot LDPE film range in Europe stood $440/ton above China, $365/ton above Southeast Asia and $325/ton above Turkey. This compares to the previously historic premiums of $1455/ton, $1270/ton and $1130/ton, respectively, back in June 2021.

FD NWE–CIF–Turkey–China–Southeast Asia–LDPE

Polyolefins caught in a downward spiral for long, is stabilization feasible?

Europe is no longer carrying an unconventional premium over other global markets as polyolefin markets remaining inflated for a long time have seen sharp downward corrections. Global demand fears and continued arrival of imports played a role in rebalancing dynamics in Europe. That is to say, the pressure on European markets may not be as great as it was between H2 2021 and H1 2022.

With clashing fears over supply and demand, a mixed sentiment prevailed in polyolefin markets. Producers opted for lower run rates amid high energy costs and lower consumption. Sitting on already high stock levels, suppliers tried to avoid inventory build-up. Supply overhang may subside to some extent should regional suppliers’ efforts bear fruit and import flows see disruptions. Polymer sales to the bloc had been boosted in the past couple of months thanks to juicy netbacks, as a side note.

On the demand front, downstream sectors have been slammed by inflationary waves from war-driven disruptions and surging energy prices, which continue to threaten manufacturing activity particularly if the production process is energy-intensive. Some converters prefer to work at night or evaluate halting their lines amid falling orders.
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