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How will global PP, PE and PVC markets respond to oil’s climb above $90?

by Merve Madakbaşı - mmadakbasi@chemorbis.com
  • 08/04/2024 (02:36)
Brent oil futures rallied over $90/bbl late last week, seeing their highest levels since November, driven by a tight supply outlook, with speculations about OPEC+ extending its output cuts to year-end and drone attacks on Russian refineries keeping jitters in place. Although global PP, PVC, and PE markets are still pervaded by tepid demand from downstream sectors, high upstream costs have been helping suppliers to some extent.

PP: Markets fare a tad better than PE on costs

Asia

Asian PP markets followed mixed paths this week, torn between firm costs and slow demand. In India, ample availability in both domestic and regional markets put pressure on PP, despite the rise in energy and feedstock costs and strong economic fundamentals. The market also saw lower buying activity ahead of the fiscal year ending on March 31. Consequently, homo-PP raffia and injection prices continued to be quoted as low as $990/ton CIF.

In China, import PP was steady to slightly firmer amid slightly better demand and relatively lower supply. Supporting the market further was the news that the official purchasing managers’ index (PMI) for China’s manufacturing sector returned to the expansion zone in March after five months of contraction, as per data from the National Bureau of Statistics (NBS). Nonetheless, prices in Southeast Asia were weighed by attractive ex-China PPH cargos in Vietnam, with overall import raffia prices in the region slipping by $20-30/ton on the week.

Europe

Although PP fared a tad better than PE owing to local production hiccups in Q1 and the Red Sea diversions, players realized mounting pressure from non-European cargos, mainly from Asia and the Middle East. Firmer upstream costs allowed producers to start issuing increases in line with the monomer hikes, although the response has been lukewarm due to the lingering holiday lull within the bloc. Sellers’ aim to improve their margins remains intact, relying on rising oil futures, but most players do not expect major gains to pass through transactions as April wears on.

Türkiye

Lower buy ideas pushed Middle Eastern PP raffia prices to $1100/ton CIF, subject to 6.5% customs duty on the low end, while PP fibre was down to $1150/ton with the same terms. Still, long lead times from the region kept purchasing amounts from hand to mouth. Adding to the pressure were liquidity issues, which persisted after the local election last Sunday. According to the weekly average data from ChemOrbis, Saudi Arabian PP raffia prices hit their lowest levels since H1 January. Lethargic demand in downstream segments coupled with the holiday lull, outweighed the high upstream chain and limited prompt availability.

A source from a Middle Eastern producer said, “Our propylene and ethane costs have been on the rise while netbacks started to be unfavorable in Türkiye once again. If margins continue to squeeze, producers may lower run rates.”

PE: Easing supply weighs on global markets

Asia

In India, buyers were in no hurry to replenish stocks, and long PE availability dragged HDPE and LLDPE down in particular. Similarly, PE prices on CIF SEA basis were unaffected by the soaring energy complex, with markets following a steady to softer trend based on demand pressure. PE offers in China, meanwhile, were unchanged between the resilient spot ethylene market and positive economic data about the country’s manufacturing sector.

Europe

The sentiment shrugged off higher April contracts for olefins due to ebbing demand following a 3-month long uptrend. PE markets seemed unlikely to absorb further increases amid the arrival of imports at aggressive levels. US PE prices have been coming down over the last two weeks, standing below the low end of Europe’s spot ranges. This, coupled with the short month of April, may hammer sellers’ targets to recoup their margin losses.

Türkiye

Most Middle Eastern producers approached the market with lower April offers, bearing in mind that April is a short month in terms of working days due to the Eid al-Fitr holiday. A source from a regional PE seller affirmed, “We better complete our monthly business before players leave their desks.”

Although a Saudi Arabian major initially sought rollovers from last March levels, buyers’ weak appetite caused the producer to step back. Overall, LLDPE C4 film and HDPE film transactions moved down to around $1080-1090/ton CIF in response to serious counter bids.

“Ample Iranian supply pushed HDPE film to fresh lows this week. The locally-held market broke below the $1400/ton inc. VAT threshold, while import offers hit $1060/ton CIF on the low end,” multiple distributors reported. Some participants think activity may see a slight boost following the long holiday if seasonal hopes materialize.

PVC: Lethargic demand, ample Asian supply outweigh high ethylene

Asia

Import PVC prices have been mostly steady in China since late March as muted activity and long domestic supply loomed over the market. Players awaited a major Taiwanese producer’s May offers, for which expectations called for rollovers to slight drops between higher energy complex and weak supply-demand conditions. “Higher operating rates persist as margins on caustic soda production remain favorable. This exacerbated the oversupply situation for PVC,” a player commented.

Ample Chinese availability has also rubbed off on Southeast Asia, as offers for this origin continued to provide a competitive edge on the low end of the import PVC market. At the same time, supportive ethylene costs prompted local sellers to lift their prices in Vietnam and India.

Stagnant demand in India and a lack of supply issues across the region may keep the sentiment on the softer side in the short term, as players put it. Nonetheless, rising oil benchmarks will likely lend support to the PVC market despite lower buy ideas in the region.

Europe

PVC sellers were yet to unveil their April prices in the region at the time of writing, as players have yet to fully return to their desks after the Easter holiday. Yet, their aim to improve their margins persisted amid higher ethylene contracts. “Buyers may show resistance to any hike attempts beyond half of the monomer gain. The peak season should have already started, but activity remains dull for now. Rallying oil futures may underpin sellers during their negotiations next week,” a player opined.

Türkiye

The demand lethargy was felt more profoundly this week, with PVC consumers sticking to the sidelines before temporary shutdowns at their factories for the Eid al-Fitr break. US K67 prices broke below the $800/ton CIF threshold but still failed to spur much appetite from buyers. Similarly, European suppliers trimmed their initial April prices in response to lower bids, despite higher ethylene contracts.

The rising geopolitical tensions in the Middle East propelled oil benchmarks higher, with ICE Brent Europe oil futures ticking up closer to $91/bbl. Should the upstream chain remain supportive, further drops may be small. Additionally, some players hope to see a demand pickup following the holidays with support from seasonal factors.
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