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PP markets in Italy and West Europe edgy as supplies shrink, costs rise

by Manolya Tufan - mtufan@chemorbis.com
  • 01/02/2024 (01:37)
In the regional markets, supply concerns came to the fore from mid-January onwards as force majeure declarations contributed to the Red Sea unrest, prompting order stops from regional and import sources. Relatively unbalanced supply-demand dynamics and rising spot propylene prices reinforced the firmer February outlook.

Total joins SABIC in declaring a force majeure

Total declared force majeure at all its PP plants in France on January 25. This followed SABIC Europe’s force majeure from Gelsenkirchen, Germany by late December as a result of feedstock issues. There was no update at the time of writing, even though SABIC’s PP plant at the location was expected to resume operations in late January.

Meanwhile, Hungary’s MOL had declared a force majeure on PP output in early December 2023, which was related to a lack of naphtha.

According to ChemOrbis Production News Pro, global markets were estimated to have seen around 2 million tons of PP output loss in January, with 55% of the production loss coming from Northeast Asia. Europe accounted for nearly 25% of the total production loss amid ongoing run rate cuts and most recent production hiccups.

PP – Capacity – lost – reductions – closed – offline

Import prices from South Korea rise the most

When it comes to the import market, supply conditions are not any better. The Red Sea situation created a logistical challenge for shippers and exporters, resulting in escalated freight rates, container prices, and insurance costs. New shipment cargos from Asia are priced $200/ton above the most recent levels, with arrival by mid-April. Import prices from Saudi Arabia also saw increases of $50-100/ton.

Still, buyers found it risky to engage in fresh import cargos given ongoing disruptions and subsequent delivery delays. February shipment cargos will be arriving in May, when a shift in the market reaction is within the realms of possibility.

3-digit hike attempts on top of C3 contract price surface

PP suppliers closed their order books after selling part of their January cargos with rollovers to increases. They were contemplating to recover their margins given that less PP imports will hit European shores, which would in turn support other import suppliers and regional producers to pull the market higher.

Indeed, some local or import suppliers even opted for exporting to Türkiye, where prices skyrocketed in a knee-jerk reaction to the Red Sea unrest due to its dependence on imports. Stability in early January repelled Middle Eastern suppliers and led to reduced allocations to Europe, which may not continue to be the case amid the firmer February outlook.

Hence, hike attempts of around €100/ton may be seen on top of the €15/ton hike in February propylene contracts. Spot propylene prices have posted cumulative increases of around €150-200/ton since early January, ChemOrbis Price Wizard showed.

Hikes of €150/ton may be sought initially amid tighter imports and margin expansion targets, with regional polyolefin producers already revealing €130-150/ton increases prior to monomer settlements. Players projected sharper price hikes in February and also a firmer trend in March.

In Northwest Europe and Italy, price ranges last stood at €1100-1200/ton for homo-PP and at €1150-1250/ton for PPBC injection, all on FD, 60 days basis.

Demand views diverge in Italy and West Europe

Buying inactivity halted from mid-January as converters resumed activities following year-end festivities. Stock replenishment at the converter and end-user level was driven by supply concerns and price hikes, needless to say. Although underlying demand remains weak, purchasing activities have been better than in December as some pre-buying was seen as a hedge against further hikes. Italian players reported seeing better activity.

Purchasing behaviours did not particularly change in West European markets including Germany, the Netherlands and Belgium as players are sceptical about the state of demand amid poor consumption of major PP applications. PP is used in packaging, the manufacture of household goods, and also in the automotive industry.

That is to say, muted demand may keep future hikes in check or at least lead to a slowdown in sales volumes.
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