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Will European PP, PE markets take a break from firming trend in June?

by Manolya Tufan - mtufan@chemorbis.com
  • 27/05/2019 (03:47)
In Europe, players started to voice their June expectations after PP and PE markets marked the 3rd month of rising streak mainly due to higher costs. Widespread expectations center on a stable to slightly firmer outlook both for PP and PE.

PE outperformed PP during May

European PE markets have performed than PP for the past two months. Supply limitations for LDPE and reduced imports for LLDPE supported sellers to achieve increases beyond the €30/ton hike in May ethylene contracts. PP deals, meanwhile, were mostly closed with increases matching the propylene hike of €20/ton.

Following the May increases, spot LDPE and LLDPE prices moved up to their highest level since July-September 2018 while HDPE film and homo PP injection prices hit almost a 6-month-high across Europe, according to ChemOrbis Price Index.

June C2, C3 awaited higher

Some players believe that higher spot olefin prices will pave the way for hikes in the monthly monomer settlements despite volatile crude oil and lower naphtha prices on the month. Expectations call for increases of €10-30/ton for both propylene and ethylene contracts.

Spot ethylene and propylene prices witnessed some increases over the course of May amid planned and unplanned production outages across the region. According to ChemOrbis Price Wizard, the weekly average of propylene and ethylene prices on FD NWE basis has recently hit their highest levels not seen respectively since November and September 2018.

Initial June offers may emerge slightly above May

Sellers might approach the market with small hike attempts in June not only because of higher costs but also because of supply limitations. Supplies are reported to be short at certain producers due to their force majeure declarations or plant shutdowns amid feedstock shortage.

Will PP, PE defy higher monomers, supply limitations?

However, whether the firming trend of PP and PE will be extended into June or not remains to be seen. Buyers approach possible hikes with skepticism, pointing to prices that hit multi-month highs during May.

Most of the buyers, who do not expect an improvement in their end business, cite that possible hike requests will be unjustified. They commented, “Supply and demand dynamics may not be strong enough to support another round of hikes in the polyolefin markets. Limited supplies will continue to balance poor demand.”

PP players mostly expect prices to stabilize in June following 3 months of increases. They cited tepid demand and sufficient supplies as reasons behind their expectations. Buyers avoid buying beyond their needs amid poor end businesses particularly from the automotive sector.

PE demand below seasonal expectations

When it comes to PE, demand slowed down towards the end of May. Although PE demand usually picks up during this time of the year, unlike PP, trading activities are expected to be limited. This made players question if the market will be able to absorb possible hikes going forward.

Chances of new round of hikes appear dim to buyers

In brief, participants generally believe that increase requests will emerge again from the producers’ side while the market will mostly remain stable at the current levels in June, taking a break from the third month of rising trend. Buyers’ ability to resist new price hikes will play a key role in determining where prices will land in June.
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