Prices tumble after dramatic cost reduction

The European standard thermoplastics market entered an unprecedented period of turbulence from mid-March. Not only has the OPEC dispute with Russia led to a dramatic fall in world crude oil prices, but the Covid-19 pandemic has caused considerable supply chain and logistics disruption.

On the upside, coronavirus-driven consumer demand has boosted sales of food, drinks and hygiene product packaging.

In March, standard thermoplastic prices were driven primarily by a downward shift in feedstock costs. Virtually all polymer products registered price discounts less than the feedstock cost reductions. Prices were supported by much stronger consumer demand for packaged food and drinks as a result of the Covid-19 pandemic and lower Asian imports into Europe.

April feedstock contract price settlements fully reflected the collapse in crude oil prices and the deteriorating prospects for European polymer demand due to coronavirus. The styrenics sector registered the most alarming cost decline. The styrene monomer reference price settled down €315/tonne, mostly as a result of the record €424/tonne fall in benzene costs.

The ethylene contract price was fixed €200/tonne lower while propylene saw a downturn of €175/tonne. Polymer producers approached the market with offers that were far less than the cost reductions would imply to protect profit margins. While most producers were unsuccessful in limiting rebates to their target level, they nevertheless managed to retain a large share of the cost reduction.

Supply good

Material availability was good across all polymer classes in March and April with most plants running without interruption. However, the combined consequences of the coronavirus pandemic and the Easter holidays caused logistics problems and delivery delays.

Specific supply-related developments since late February include:

•    ExxonMobil Chemical restarted its 830,000 tonnes/year ethylene plant at Mossmorran, Scotland late February. It has returned to the market after a shutdown of almost six months due to planned and unplanned works since August 2019.

•    Spring cracker maintenance works in Europe include Dow (Tarragona, Spain), Sabic (Wilton, UK), INEOS (Dormagen, Germany) and Shell (Wesseling, Germany).

•    Equipolymers has restarted one of its two PET lines in Schkopau, Germany following a three-week long maintenance work which started on March 9.

•    Kem One declared force majeure on PVC deliveries from its site in Saint-Fons, France on 19 February because it had an interrupted supply of VCM feedstock after a barge was damaged on the Rhône River.

•    Borealis issued a force majeure declaration for its Stenungsund steam cracker in Sweden on 8 April 2020 as a consequence of a technical incident.

•    Maintenance work is being carried out at the Unipetrol PP facility in the Czech Republic in April.

Consumer demand surges

Plastic packaging demand has been strong since mid-March as a result of consumers stockpiling food, drink and hygiene products due to imposition of lockdowns by national governments. However, it is uncertain whether that high demand would be sustained once supply chains adjusted to the lockdowns.

Plastic product suppliers to the automotive end other parts of the economy that have been shut down by Covid-19 have been hard hit by falling demand and uncertainty.

May outlook

OPEC+ tentatively agreed to cut production by 10 million barrels/day in an effort aimed at stabilising the volatile oil market, starting on May 1, 2020. Despite the scale of the agreement concerns remain that weaker demand due to coronavirus amid lower oil consumption will continue to provoke oversupply. For May, a further reduction in feedstock costs and plastic prices seems the most likely scenario.

L/LDPE

In March, L/LDPE prices fell by just less than the ethylene contract price reduction but during April prices plunged at triple-digit rates. L/LDPE producers attempted to retain a part of the €50/tonne reduction in ethylene costs in March to improve their margins. Booming consumer demand throughout Europe for food and hygiene products due to the Covid-19 pandemic enabled L/LDPE producers to restrict the price rebate to less than the fall in feedstock costs. The crude oil price collapse in mid-March led to a massive €200/tonne reduction in the April ethylene contract price. L/LDPE producers targeted a price reduction of between €50-80/tonne to further bolster margins. However, converters wanted price cuts much higher than €100/tonne. LDPE prices were down €100/tonne and LLDPE prices had fallen €140/tonne by mid-month. Further price reductions were anticipated later in the month.

HDPE

In March, HDPE prices fell by less than the ethylene cost reduction but saw a substantial reduction this month following the oil price collapse. The March ethylene contract price settled €50/tonne lower following a downturn in crude oil prices and coronavirus concerns. HDPE producers successfully retained a share of the cost reduction with contract settlements down by just €30-40/tonne over March closing levels. Demand was particularly good for virus-driven products such as food, pharmaceuticals and hygiene products, and there was some pre-buying with growing concern about logistics and delivery problems. HDPE producers managed to keep price reductions below the fall of €200/tonne in the April ethylene contract price. Injection moulding grades fell €175/tonne while blown film and blow moulding product fell around €130/tonne. Material availability was very good and demand for virus-related products continued at a lively pace.

PP

In March, the PP price reduction varied by product type, while in April all product classes have seen prices slashed. A €20/tonne reduction in the March propylene reference price pulled all PP prices downward. Homopolymer injection prices for larger customers fell more than costs due to an oversupply situation, whereas blown film and copolymer injection prices, where supply was tighter, fell in line with costs. The coronavirus crisis led to higher than usual PP packaging demand. The April propylene reference price settled down €175/tonne following the earlier collapse in crude oil prices. PP producers were hoping to pass on only €50-80/tonne of the cost reduction to customers. However, buyers sought a larger share of the cost cut. Copolymer injection grades were down around €140/tonne, while homopolymer injection and homopolymer film prices fell €125/tonne and €105/tonne, respectively.

PS Polystyrene has experienced an unprecedented price crash during the last two months as a result of a dramatic reduction in styrene monomer (SM) costs. In March, the styrene monomer reference price settled €126/tonne lower due to high supply and lower benzene costs. PS suppliers tried to retain as much of the cost reduction as possible to support their margins, but saw prices tumble €110-115/tonne. Supply was plentiful and demand mixed; some converters bought additional stock with the onset of Covid-19 while others took a more cautious approach. In April, the SM reference price slumped €315/tonne to an eleven-year low due largely to a record €424/tonne crash in benzene prices and lower demand due to Covid-19. PS producers succeeded in keeping price rebates to below €200/tonne to protect margins. Material availability also was impacted by several production outages and logistics problems.

PVC

In March, PVC prices were mostly unchanged, but tumbled in April as a result of the substantial reduction in ethylene costs. A €50/tonne drop in the March C2 contract price forced PVC producers to abandon their plans to raise prices. Nevertheless, PVC base resin and rigid PVC compound prices mostly remained unchanged compared to the previous month. However, flexible PVC compound prices softened as a result of lower plasticiser costs. The April ethylene reference price fell €200/tonne, which means a proportionate reduction of €100/tonne in the PVC cost base. PVC producers’ efforts to limit price rebates to €50/tonne failed and notations tumbled €100/tonne. The coronavirus crisis led to a slump in PVC demand, particularly for pipes and profiles. With most plants up and running, PVC supply soon swelled, and producers started to make production cutbacks.

PET In February and March, European bottle-grade PET prices held up well in light of feedstock costs tumbling by over €140/tonne. PET prices fell by less than €50/tonne during the two month period, supported by stronger sales. The spread of the Covid-19 pandemic led to surge in PET demand. The social distancing bans put into place forced consumers to stay at home and led to panic buying of food and beverages. PET packaging buyers and processors also sought additional stocks to be on the safe side. Far Eastern imports were restricted by the lockdown in China and border controls. The April paraxylene contract price was expected to settle with a triple-digit decline. However, initial offers from European PET suppliers reflected the €80/tonne drop in monoethylene glycol costs. By mid-month, PET polymer prices were also down €80/tonne.