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Will European PP markets change direction after 3 months?

by Manolya Tufan -
  • 25/05/2020 (08:06)
In Europe, June PP expectations have emerged stable to slightly firmer following the bearish rally that had been in place for the past three months. PP suppliers aim to approach the market with increases citing a potential hike in June monomer settlements. Whether hike attempts will be absorbed is under discussion amid weak demand outlook.

Players: PP hits bottom in May

The majority of players converge on the idea that PP prices have bottomed out in May. Prices hit 11-year lows following three straight months of decreases. According to the weekly average data on ChemOrbis Price Index, homo-PP and PPBC inj. prices on FD Italy basis hover at around their lowest levels since June 2009.

Upstream gains spark expectations for firmer C3

Although spot propylene prices have barely changed since the end of April, firmer oil futures and spot naphtha prices paved the way for firmer expectations for the next propylene settlement. According to ChemOrbis Price Wizard, spot naphtha prices on CIF NWE basis have surged by 110% in the past three weeks.

June propylene contracts are expected to settle with increases of €15-30/ton.
PP sellers voiced their intentions to apply modest increases on June prices in case of higher monomer contracts.

PP demand lags behind PE

Nevertheless, some players argued that June PP prices may shrug off a potential increase in the propylene settlement due to the overall weakness of demand.

PP demand has lagged behind PE for some time now mainly due to the demand destruction in the automotive sector. Demand from the automotive and household appliances sectors has not been up to expectations following the end of lockdowns even if many car manufacturers resumed operations across the region.

Apart from better demand, supplies of some PE grades are tighter. Therefore, players think that PE prices have more potential to move higher when compared to PP.

However, demand for certain PP grades going into packaging and medical applications has remained robust. Buying appetite for caps and closures has also been uninterrupted amid high consumption of bottles and flacons. Still, better demand in these segments has made no major improvement in the overall demand picture.

A major market participant commented, “May sales were satisfactory for our spunbond and meltblown PP grades.”

PP buyers cautious on foggy demand outlook

A limited number of converters did pre-buying during May due to firmer voices for June. Yet, most buyers have been conservative with their purchases amid tight liquidity and concerns over the pace of recovery in their end markets. Consumption of non-essential items is not likely to increase in the near term, as a compounder put it.

With the coronavirus pandemic receding, countries have gradually lifted lockdown measures. This has failed to generate a remarkable boost so far this month, while social distancing and other measures may continue to hit businesses going forward.

Players are generally skeptical about a swift return to normal, commenting that some businesses will try to compensate for their losses during the rest of the year.

They concurred, “Sellers will start offering with increases, while PP hikes may stumble due to slow demand later in the month.”
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