The euro has been steadily climbing up vs the US dollar since late August with the parity at an almost five month high as it rose above 1.36 during daily trading as of yesterday, as per Chemorbis. The appreciation of the euro gained speed particularly in the past 10 days as disappointing economic results reinforced worries about the weakening recovery in the US. Mounting speculation that the US Federal Reserve would need to further ease the monetary policy pulled the dollar to a five-month low against the euro. The euro has risen about 11% against the dollar so far in the July-September quarter and is on track for its biggest quarterly percentage gain in about eight years, according to Reuters data.
Needless to say, the appreciating parity is attracting more import cargoes to Europe as it results in lower values on euro terms, contributing to the competitive power of these cargoes. So far, this has made itself felt particularly in Italy’s PP and PVC markets. Some traders have revised their prices downwards for US and Mexican PVC cargoes, bringing their offers close to or even below the low end of the overall local spot market range. Chinese PVC also showed up in the country last week as the holiday lull in Asia appears to have shifted this origin to Italy despite the rising local market in China while the rising parity enhances the competitiveness of this offer.
The spot PP market has also been seeing some competitive offers for non-European origins for the past two to three weeks. As a result of the earlier arbitrage opportunities, Saudi Arabian homo PP has provided a competitive edge below the low end of the local European price ranges. Vietnamese and Brazilian cargoes are also reported over the week as irregular sources showing up in the country. Theoretical calculations based on the recent October offers to Turkey for Middle Eastern and Indian origins suggest that more non-European cargoes may emerge at competitive prices in the country for the near term, partly thanks to the rising parity.
The PE and PS markets in Italy are yet to see the impacts of the soaring euro since there are not many import cargoes offered for these products. The HDPE market, where the current prices are already considered low, has already been feeling pressure from non-European origins, mainly from Iran, the Middle East and US, at the low end. However, the rising parity may enable these overseas sellers to pull down their offers a little bit more if they want to be aggressive for the days ahead. In the PS market, players have been complaining about tight supplies for quite some time. The market carries a large premium over other neighboring markets and imports can find a home in Italy at prices at least €100/ton below the local market level after including all applicable costs.
Some analysts expect the dollar to erode further for the near future, which renders this currency less appealing for investors and causes them to cover their short positions with the euro. On the other hand, other analysts underscore that further appreciation of the euro may be limited amid ongoing worries about debt woes and other difficulties in the euro zone. Trade unions in Spain and elsewhere in Europe called strikes Wednesday to protest austerity measures. The concerns over the fiscal deficits of Ireland and Portugal are also weighing down on the prospect of the strengthening euro.