European PP, PE markets open 2023 with renewed drops

Regional polyolefin markets extended losses into the second month as 2023 kicked off amid lower monomer settlements, lethargic demand and a lack of supply issues. The size of drops was again varying based on the supply position and starting level.

PP sees drops matching C3, three-digit decreases obtainable on PE

Decreases for PE gained momentum, with up to 3-digit decreases being obtainable on deals. Although some suppliers applied smaller decreases, most deals were closed with €80-100/ton drops. Even decreases beyond €100/ton could be obtained as supply continued to surpass demand and a few suppliers issued drops of up to €150/ton to entice better buying interest.

When it comes to PP, suppliers mostly applied drops in line with the propylene but smaller drops of around €50/ton were also heard from the market. As negotiations are still underway, some sellers may concede to additional discounts on their initial offers. Current stock levels would suffice for the current demand.

Energy costs recede

Milder than expected temperatures, alternatives to Russian gas and high storage levels pushed natural gas prices in Europe to pre-war levels. Lower gas prices were also attributed to the lower energy consumption as part of the conservation efforts.

This has apparently provided some relief for producers lamenting about razor-thin margins. Production costs have actually fallen due to lower gas and electricity prices since late December. Despite recent drops, gas prices remain historically and globally high and make it hard for businesses to boost energy consumption.

Will demand be a tad better than December?

Participants have been slowly coming back to the market after year-end festivities, leading to lighter than usual trading volumes. There has been no signs of recovery in underlying demand so far despite lower prices, while some players reported a nascent recovery in buying interest when compared to last month.

Since buyers have mostly skipped purchasing in late December amid bearish expectations, sellers expect to see some replenishment activity this month. Still, purchases would not go beyond needs and would remain on a stock replenishment basis due to the unpromising outlook for the rest of Q1 amid recession fears. Some buyers adopted a wait and see stance due to poor order entries, as a side note.

Imports scarcely heard

As European prices continued to fall, some major polyolefin markets showed an uptick after hitting the bottom last month or early this month. Import prices were less frequently heard amid suppliers’ changing attitude that was attributed to the rebounding prices in other global markets amid supply cutbacks for various reasons, China’s reopening optimism as well as delivery disruptions.

Meanwhile, participants keep a close eye on US material after freezing weather forced several petrochemical producers to shut down or lower rates at many crackers and downstream units from late December. Fresh offers for US PE were few and far between, while previously secured cargoes are facing some delays. Hence, buyers avoid securing US PE for the time being despite competitive levels. Yet, volumes booked in the previous months are expected to arrive late this month or early next.

Longevity of downtrend hinges on return of demand

Lower run rates and renewed production losses will help underpinning resin prices, while lower energy costs as well as unpromising demand will hold off a long awaited rebalancing of domestic markets.