Demand disappoints as prices track monomer costs

In September, price development for most classes of standard thermoplastics closely followed monomer cost settlements. Polyethylene and PVC prices fell in line with ethylene costs while polystyrene prices increased in line with the cost of styrene monomer (SM). However, polypropylene prices fell by less than the propylene cost settlement.

Demand was lower than expected after the summer holidays while material availability was good across most product sectors. 

For L/LDPE, tightening supply and better demand meant that the €40/tonne ethylene cost reduction was not passed on in full and prices fell on average by €35/tonne. For HDPE, the cost reduction was not passed on in full for blown film and blow moulding product, but injection moulding prices fell in line with costs mainly due to import pressure. 

PP producers’ plans to improve margins were assisted by planned and unplanned supply restrictions at cracker and PP production plants. PP prices fell on average during September by around €30/tonne compared with the €50/tonne fall in propylene costs. 

The September SM reference price increased €59/tonne following a sharp rise in the cost of benzene. However, given poor demand and good supply, producers were forced to raise prices by less than the cost rise. 

For PVC, a combination of good supply and weak demand forced suppliers to pass on the ethylene cost reduction to processors in full. 

With ongoing uncertainty over cost development freely-negotiated monthly contracts for bottle-grade PET varied widely; from a rollover to an increase of €30/tonne for small volume business. 

Demand disappoints

In September, polymer demand failed to pick up by quite as much as would normally be expected after the end of the summer holidays. Weak end-use demand meant here was no pressure on converters to rebuild stocks and they were mostly prepared to sit back and wait to see what happens. 

However, following the drone strikes on the Khurais oil field in Saudi Arabia and the neighbouring Abqaiq refinery 14 September 2019 oil prices saw a massive surge. Brent crude initially shot up around 16%, but have since fallen back, trading some 8% higher than before the attack. However, the fear of an escalation in the conflict remains. For plastic buyers, – especially for polyolefins – this encouraged buying in the short term, stocking up if necessary and before any upcoming price increases occur.

Supply shortening

In September, there was generally more than sufficient material available to meet demand across all product sectors. However, the upcoming autumn cracker maintenance season could lead to feedstock shortages over the next few months. 

The European propylene chain is beset with production issues at present. Borealis reported 2 September that its PP facilities in Burghausen, Germany have been shut down since 24 August 2019. Borealis also declared force majeure (FM) on 2 September on its propylene production in Kallo, Belgium. However, this FM announcement does not apply to PP production in Kallo. It is not yet known how long the outages at both locations will last. 
Meanwhile, Ineos declared FM effective 19 August on deliveries of bimodal HDPE from its Lillo plant in Antwerp, Belgium due to a power outage at the end of July, which affected the entire site.

October outlook
 

Oil prices increased sharply after the drone strikes on the Saudi Arabia oil field mid-September. The reverberation of this development on plastic prices remains uncertain but it is likely to support price increases at least in the short term.

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