Producers question downward trend on firm naphtha

18-Oct-12

On an average, spot naphtha prices have been firm for the last three weeks both in Asia and Europe after the plunge seen in H2-September, as per ChemOrbis. Nevertheless, PP and PE prices in both regions have slipped as of early October. Taking this situation into account, regional producers are questioning the expectations about further decreases, even though they cannot deny the persistently slow state of demand and widespread waiting stance on the buyers’ side. Spot naphtha was reported at and above US$960/ton both in Europe and Asia on CIF basis as of the beginning of the week, standing at least US$30/ton above the end of September on average. In Europe, PP and PE prices have started to post larger decreases than that of the monomer contracts. Monthly decreases of up to €90-100/ton have been seen in Italy’s spot PP, PE markets, according to players’ reports. Producers are believed to be facing high stocks as demand has not been so outstanding across the region since September. Therefore, they are currently offering large decreases. Nevertheless, their price cuts have triggered expectations about further decreases and pushed buyers to the sidelines, rather than enticing buying interest. An official distributor of a West European producer commented to ChemOrbis, “This decreasing trend is likely to continue in the near term; nevertheless, I cannot be sure about its speed as rising crude oil and naphtha prices defy this downward momentum in the PP market.” A similar situation is in place in the Asian markets. Producers are complaining about their squeezed margins as upstream crude oil, naphtha prices and downstream PP, PE prices moved in opposite directions. Weekly decreases of up to US$30-40/ton are seen in import offers for the two products to the Chinese market. According to players in China, PP and PE prices are set to witness some additional declines in the coming weeks due to limited buying interest. Supplies are also expected to loosen later in the month particularly for PE. However, players feel that firm upstream costs will put a cap on the extent of any further declines. “The decreasing trend should slow down considering the firm stance of the upstream energy and monomer markets,” commented a few Chinese players.