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European PP retains strength under shadow of arriving imports

by Manolya Tufan -
  • 10/05/2021 (03:55)
Still-tight prompt availability amid lingering outages has prompted European PP producers to push for further margin expansion as initial May offers emerged with up to 3-digit hikes. Earlier expectations were calling for a stable to slightly firmer trend.

Europe defies broader downtrend

Although rollovers were reported in a few cases, initial PP offers for European origins mostly emerged with monthly hikes. This is because producers approached the market with hikes of up to €100-150/ton, despite the €10/ton higher propylene settlement, amid a lack of prompt availability. A player commented, “Price gains have a leg to stand on given the lack of material. PP supplies are regionally short amid virus-driven setbacks. We’re not out of the woods yet.”

Strong downstream offtake was also cited as another reason for the sharp hike requests. Supporting this view, the seasonally adjusted PMI index in Eurozone increased from 62.5 in March to 62.9 in April, hitting a fresh record high. Packaging applications saw additional support in line with increased mobility after easing of lockdown measures, as a manufacturer put it.

On the face of it, European PP markets have defied the downtrend in major markets, marking the 7-month long rising streak. In nearby Turkey, import PPH prices fell sharply amid arriving cargoes and thin trading. Renewed COVID fears in India and Southeast Asia have weighed on the PP markets, while the Ramadan lull in the Middle East and North Africa also keeps demand outlook for May under pressure.

Competitive imports surface amid a wide arbitrage window into Europe

Europe is by far the most attractive region as prices hit historic highs on the back of tightness. The premium of European PPH and PPBC prices over other major markets widened further after May hikes.

As can be seen from the below graph, the USD equivalent of spot PPH inj. prices in Italy stand well above China ($1270/ton), Southeast Asia ($1190/ton), Egypt ($575/ton) and Turkey ($920/ton).

FD – Italy – CIF – Turkey – Egypt – China – SEA – PPH

Spot PP ranges were assessed stable to €30-50/ton higher week over week at €1950-2150/ton for PPH and €2030-2200/ton for PPBC FD Italy, 60 days. In Northwest Europe, prices were assessed €50/ton higher at €2000-2150/ton for PPH and €2050-2200/ton for PPBC inj. FD, 60 days.

As for imports, South Korean PPBC was transacted at €1570/ton CIF, 60 days with delivery in late July. Offers for this origin at €1550/ton CIF were also reported for July delivery. According to talks, there will be more imports arriving for the Middle Eastern and various Asian origins.

Buyers remain wary

Not everything is rosy, though. There is a nagging concern that buying sentiment may be affected amid shaky outlook under shadow of arriving imports.

Buyers remain reluctant to accept hikes especially on the high end of the price ranges and try to skip purchases from the spot market if possible. This is because they think that suppliers may step back from their initial hike attempts later in the month due to competitive import prices and mounting resistance to inflated prices. Some buyers have secured near-prime cargoes, meanwhile.

The bearish PP outlook across major markets cast a pall on the European market, which provides the highest netbacks for PP sellers. Sustainability of record high prices is just as difficult. A reversal seems likely for June after regional plants come back online following the end of spring maintenance shutdowns and import cargoes arrive by late May-early June.
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