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European players evaluate PP, PE and PVC outlook for April amid oil slump, virus lockdown

by Manolya Tufan - mtufan@chemorbis.com
  • 16/03/2020 (04:51)
In Europe, players were perplexed by the biggest one-day rout for oil in 30 years on March 9. The nationwide lockdown in Italy has yet to be felt profoundly in terms of pricing policies for March. Still, April expectations call for a bearish trend in light of the recent developments.

Crude fails to pare Monday’s losses

Oil prices plunged by nearly 30% on March 9 in response to the collapse of OPEC+ talks aimed at reducing output. Crude futures failed to pare early week losses in the following days as fears over supply overhang continued to dampen markets.

Data from ChemOrbis Price Wizard reveal that the weekly average of WTI (NYMEX) and Brent crude oil futures stand at their lowest levels since February 2016.

What happened in Italy?

Grappling with the coronavirus pandemic, Italy drastically tightened a nationwide lockdown late on Wednesday in a bid to curb the spread of the COVID-19.

Travel curbs across the board reduced tourism to a great extent, with organizers being compelled to cancel public events.

Italy’s lockdown sparks stricter border controls with neighboring countries while the border remains open for goods traffic. Meanwhile, petrochemical production is reportedly running normally within Italy, with some idled plants resuming production to avoid any delivery mishaps.

March deals for PP, PE closed lower while PVC remains flat

Initial rollover attempts for PP failed to prove workable and March deals were wrapped up with €10-20/ton drops in line with the propylene settlement. A similar scene was observed in the PE markets, where deals were closed with €20-30/ton drops for LDPE and LLDPE and €50/ton for HDPE owing to the pressure from competitive import offers for this grade.

When it comes to PVC, prices have defied lower upstream costs so far. March PVC deals have been closed with mostly rollovers owing to production outages across Europe. Only a few deals were closed with slight discounts while whether or not this will gain traction remains to be seen.

Logistics concerns prompt purchases beyond regular needs

Converters in Italy stick to their basic needs due to the uncertainties over COVID-19 outbreak. Bearish April expectations also prevent them from making safety stocks.

On the contrary, some buyers in Northwest Europe preferred to make some safety stocks to capitalize on currently low prices and handle possible supply disruptions amid containment measures carried out by the authorities within the region.

Although PE demand was mainly based on requirements for March, some converters reported increased orders for hand sanitizers and food packaging. A distributor in Germany reported, “Our order entries for March are good as several buyers have decided to restock to be covered in case of deteriorating logistics in the days to come.”

A recovery in PVC demand was expected in line with the seasonality, but this has not materialized so far except for an improvement in the medical sector given the COVID-19 outbreak.

Demand was hesitant due to the opposing factors amid concerns over stricter containment measures and weakening expectations for April. With the increased checks both at ports and borders, the possibility of delays in deliveries may result in a lack of material. This may push converters to secure extra-volumes as it takes longer time to offload trucks.

They are also wary of rising freight rates amid fewer ships and a lack of containers amid interrupted global trade. “If supplies tighten due to the delivery disruptions, this might alleviate the cost pressure to some extent,” a player opined.

April C2, C3 awaited drastically lower

Some players expect to see drops of €80/ton for propylene and €100/ton for ethylene, considering the plunge in spot naphtha prices. The ongoing uncertainty over the outcome of COVID-19 outbreak and stability concerns in the energy markets were also cited as reasons behind those expectations.

A buyer said, “We hold bearish expectations for April unless crude oil and spot naphtha prices pare their earlier losses going forward.”
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