European PP and PE markets have been gradually firming up since November 2020 and have been trading at all-time highs since around early March. April hints at further firming amid ongoing shortage and higher monomer settlements. However, demand is cautious amid expectations about a nearing peak.
April may be the last month of hikes
With the shortage reigning the April outlook, prices are widely expected to post increases well beyond the monthly monomer hikes of €40/ton for ethylene and €45/ton for propylene.
European suppliers may issue another round of 3-digit increases as supply concerns show no signs of abating amid planned and unplanned outages. A reseller reported, “We expect massive hikes of €200/ton amid a lack of imports and regionally short availability.”
According to players, the 6-month rally in Europe’s polyolefin markets is coming to an end as prices are widely believed to hit their peak in April.
European PP and PE prices are set to reach a plateau towards May amid prospect of easing supply tightness due to a combination of returning capacities and the arrival of imports.
Players reported facing delays with the arrival of Middle Eastern PE cargoes due the blockage of the Suez Canal by a massive container ship running aground. The massive container ship was fully refloated on March 29, while ramifications of a week-long blockage in the canal are closely tracked.
Inflated prices attract imports to Europe
Europe has been offering quite attractive netbacks since prices witnessed lofty hikes from January onwards. Overseas suppliers are motivated to divert their exports to the region, while the arrival of these cargoes is due for May-June. A player said, “We expect to see more import offers as of May.”
Import HDPE offers slightly below the prevailing spot ranges were heard from the market. A pipe maker noted, “We secured some import HDPE b/m with delivery in June. These offers indicated slight drops compared to May delivery cargoes.”
Arbitrage window to Europe wide open
Supporting this view, Italy’s PP and PE markets are trading at a premium over other global markets including Turkey, Egypt, China and Southeast Asia.
When looking at the USD equivalent of spot prices in Italy, the country’s local LDPE market was carrying a premium of $630/ton over China’s import market by around mid-March, the weekly average data from ChemOrbis showed. Meanwhile, Italy’s LDPE market stood $380/ton above Egypt, $530/ton above Southeast Asia and $290/ton above Turkey.
Similarly, Italy’s PPH prices carry a premium over Turkey ($340/ton), Southeast Asia ($720/ton), China ($890/ton) and Egypt ($300/ton) in the meantime.
Buyers cautious amid talks that prices nearing a peak
Players have noticed a change in the air despite ongoing supply shortages. Converters are cautious about restocking as prices touched historic highs across the board.
Demand is fragile as some sectors are grappling with payment issues and credit limits as they can no longer afford to pay such high prices. “End product prices soared by more than 50% in the past 3-4 months and it is not sustainable. We struggle to reflect costs on our end product prices,” a manufacturer lamented.
Several players are convinced that prices will peak in April and plateau in May. These expectations prompt converters to withhold fresh purchases particularly if they have some stocks. Some downstream lines may be halted during the Easter holidays to cushion the impact of a dearth of raw material, inflated prices as well as renewed lockdown measures.
“Buyers are limiting their purchases according to their immediate needs, believing that the market will hit its peak level soon. We expect overall demand to slow down as further increases will not be absorbed in many sectors,” a reseller commented.
There remains the question of whether or not suppliers’ initial hike requests will be fully absorbed. A manufacturer opined, “Producers will aim to obtain the most of the April hikes as it may be the last bullish month.”