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European players evaluate impact of energy surcharge on polymer markets

by Manolya Tufan - mtufan@chemorbis.com
  • 18/10/2021 (13:08)
In Europe, the unprecedented surge in energy costs has rattled regional polymer markets that have been facing other setbacks driven by the pandemic. Several producers announced their plans to implement an energy surcharge on their prices, addressing the sudden and abrupt hikes in natural gas and electricity prices leading to a significant erosion of margins.

Low gas stocks in Europe amid reduced imports from the US and Russia as well as demand growth amid reopenings were shown as reasons behind the price surge. This in turn affected production margins in energy-intensive industries, including PVC and LDPE. Whether or not other suppliers will reflect rising utility costs on resin prices is being discussed.

PVC

Kem One has been the first producer to levy surcharge on its PVC prices as of October 1st. The company decided to apply a surcharge of €110/ton as steep September hikes in energy costs will have by far exceeded the anticipated evolution of the price of caustic soda and PVC on their side. The producer source reported, “As a matter of fact, gas and electricity prices in France would have increased by respectively 290% and 230% since January. And this dynamic is true all over Western Europe.”

Although there has been no official announcements, a different West European producer also applied €120/ton hikes on its PVC offers starting from October.

Most suppliers issued €50-60/ton hikes on their offers, with one of them commenting, “We haven’t applied an energy surcharge so far. Still, prices are set for renewed increases in the short term due to unbalanced market conditions.”

Looking ahead, players exclude a reversal in Q4 despite inflated prices, citing that rising utility costs on top of lingering shortage, healthy demand and global firming will provide producers the leverage needed to maintain or hike prices.

Polyolefins

LyondellBasell decided to implement a natural gas and electricity surcharge, which is currently set at €50/ton, on all its LDPE, HDPE and PP orders supplied after November 1, 2021.

As a precursor to the forward movement on prices, a few producers were seen testing the market with hikes of up to 3-digits both for PP and PE. However, October demand has lagged behind expectations due to buyers’ resistance to hikes beyond the monomers’ outcome amid already inflated levels. Hence, sellers had to step back from their initial hike attempts by mid-month. October PP deals have been mostly closed with rollovers, while a stable to slightly firmer trend was observed for PE depending on the grade.

November expectations are shaping up on the bullish side, looking at projections to reflect rising energy costs on resin prices and limited imports. Despite firmer voices, buyers have felt no urge to stock up by mid-October. It remains to be seen whether or not moderate demand and relatively better regional availability will put a brake on the awaited hike attempts.

PET

According to market sources, Alpek Polyester UK has applied a surcharge of €170/ton on PET contracts for October to tackle rising costs.

There has been no other PET producers following suit so far, while the bullish run in Europe was already fueled by supply shortages and global firming.

Styrenics

Trinseo announced that it will apply energy surcharge for plastics, latex binders and synthetic rubber products to reflect cost increases. Accordingly, the surcharge of up to €500/mt ($580/mt) will be applied to the contract and spot prices for all products produced in its European facilities as of October 27.

ABS shortage led to a mostly firmer trend in October. Automotive and appliances sectors witnessed a slowdown compared to the first 8 months of the year amid the microchip shortage. Indeed, new passenger car registrations in Europe indicated the lowest amount for a month of September since 1995. However, slowing demand was counterbalanced by short ABS supplies. As for November, rising costs have paved the way for bullish expectations, as is the case for other polymers.

October PS deals have been closed with increases amid supply constraints stemming from regional shutdowns and falling imports. Meanwhile, rising costs are expected to lead to renewed hikes in November as suppliers intend to apply energy surcharges. Plus, a distributor said, “There will be a surcharge for extra volumes as well amid tightening availability.”

Upstream strength, logistics snarls support Nov outlook for all

Upstream markets were propelled higher by strong crude oil futures. According to ChemOrbis Price Wizard, spot naphtha prices on CIF NWE basis hit their highest level since late September 2014. Spot ethylene, propylene and MEG prices on FD NWE basis as well as styrene and PX prices on FOB NWE basis mirrored gains in the upstream markets.

Lingering supply chain snarls and global firming also contribute to the bullish November outlook.

Import prices are unworkable as a result of sky-high freight rates, while logistical backlogs put players off from engaging in distant cargoes. Shipping turmoil will keep import supplies restricted in the foreseeable future, participants believe. Nevertheless, players talk about the possibility of seeing more US PE cargoes towards the year end in Europe, which offers one of the highest netbacks across the board.

Apart from maritime logistics problems, Europe has been grappling with a lack of truck drivers, which adds to the rising transportation costs.
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