Relief for converters as polyolefin prices plummet

European polyolefin buyers enjoyed long-awaited relief in June as feedstock costs and prices tumbled from the lofty heights of recent months.

The weakening global economy continued to push crude oil, naphtha and petrochemical feedstock costs on a downward trajectory with polymer prices following suit. The June ethylene and propylene contract prices declined by €120(£95) a tonne and €125(£99) a tonne respectively.

PE producers hoped to limit price concessions in line with the lower cost base but a combination of excess supply from local producers, import availability and weak sales meant that prices fell by more than the cost reduction. PP prices, on the other hand, fell by a similar order of magnitude to the cost base as material availability here was not quite so long.

The June styrene monomer contract price was surprisingly rolled over from May. Benzene, a key component of styrene, continued to buck the trend of other petrochemicals by rising sharply. PS producers could not however manage to hold prices at May levels as originally planned as notations softened.

PVC sellers avoided further margin erosion by restricting price concessions to €60/tonne, which reflects the impact of lower ethylene costs on their production cost base.

PET producers, on the other hand, attained a small margin improvement with prices falling by less than feedstock costs. Better seasonal sales helped their cause.

Material was widely available in June with most polymer suppliers well stocked. The PE sector had an excess of supply over demand while PP was not quite so long. PS and PVC, on the other hand, were closer to balance.

There were plenty of special offers available as suppliers sought to offload material before prices fell further.

Most polymer lines were running without any planned or unplanned outages in June. However, producers have started to curb production or to bring forward maintenance programmes in order to control their stocks and this trend is likely to continue should demand fail to recover.

The latest supply-related developments are:

• Basell Orlen Polyolefins planned to close its PP plant at Plock, Poland in mid-June for a maintenance turnaround.
• Sabic begun a three-week maintenance turnaround at its PP line at Geleen, The Netherlands in the first week of June.
• Neo Group, Lithuania, declared force majeure for PET on 17 May as a result of a technical problem encountered at one of the two waste water plants during a scheduled maintenance turnaround.
• Omani PET producer Octal will increase production capacity threefold to over 900,000 tonnes/year by the end of July.

Demand for all polymer classes was affected by buyers adopting a ‘wait and see’ attitude to ordering activity. The general impression was; why should we buy now when we can get lower prices later? Those converters who had to buy insisted on price concessions well in excess of producers’ cost relief.

Furthermore, the gathering European economic malaise is curbing end user and hence converters’ demand for polymer.

As crude oil, naphtha and spot petrochemical costs continued to fall in June, a further reduction in feedstock and polymer prices seems inevitable in July. The only question seems to be how far and how fast prices will fall.

As long as supply remains long and demand restrained, producers will have no choice but to grant more price concessions, often higher than the cost reduction. 

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