In Europe, the propylene market remains on a bullish note, in accordance with delivery disruptions from harsh weather conditions in the region, the ongoing tightness, good demand and squeezed cracker margins, as per Chemorbis. Naphtha and crude oil prices, which had started 2010 on a firm note and had managed to remain around the US$80/barrel threshold until they started to retreat last week, also created firm ground for spot propylene, which rose by more than €100/ton in Europe since the beginning of this month. The gains in spot propylene prices surpassed the increases seen in January propylene contracts in Europe, which settled early this month with an increase of €40/ton over December.
Firm upstream markets, also had an influence on the January PP market. European PP producers initially came to the Italian market with large price hikes of €70-100/ton after they returned from New Year holidays. Although buyers voiced their discontent with sellers’ hike targets, pointing to slow performance of their end-product markets at this time of the year, sellers remained mainly firm with their prices as they were confident that most buyers have low stocks, which would force them to pay higher prices to meet their needs. Indeed, PP producers have found the largest support from spot propylene prices as the theoretical cost of producing PP for non-integrated producers would come to around €1000/ton at minimum, after adding an estimated conversion cost to current spot propylene prices, but disregarding inland transportation and sellers’ margins. According to reports from Italy, the homo-PP market saw increases of €50/ton from December over the week. Based on tight monomer supplies and surging spot prices in the region, firm expectations for February propylene contracts have been filtering through the Italian PP market, setting a firm ground for European PP producers to seek further increases on their February offers. A buyer, who received a West European homo-PP offer with a €80/ton increase over December last week, was already offered cargoes scheduled for February with an additional increase of €70/ton.
In Turkey, where there are still some regular European PP suppliers who are yet to reveal their new prices, euro based offers are also posting incremental increases on a weekly basis. European raffia offers, which had initially showed up with large increases over December, gained an additional €20/ton last week and then rose by another €40-50/ton this week, while fibre grade increased by €20-30/ton on the week.
Although speculations about a firm February outlook are becoming widespread, February propylene contracts and European spot PP prices may be affected by the downturn in the upstream chain. The weakening energy markets are likely to become a factor affecting the degree of increases sought next month if crude oil and naphtha prices continue to track a downward path.