Exports bring temporary relief for Europe propylene

LONDON (ICIS)--A combination of exports and cracker operating rate reductions over the past four months has helped to offset some of the bearish pressure on propylene, which resulted from poor demand from its derivative polypropylene (PP) and varied production problems, market sources said on Friday.

About 100,000 tonnes of propylene has been booked for export since July, primarily to the US Gulf and Americas, the sources added. This has gone a long way to rebalancing players’ systems.

Weak demand and ever decreasing prices in Asia has led to little interest in exporting east. Shipowners are not keen to offer competitive freight rates to Asia, with one saying “ships that end up there have nothing to take back, and rates are just too high".

But despite the steps taken by the European players to inure themselves against the demand slowdown, the market remains balanced-to-long. The propylene market could lengthen further as a result of waning export potential and little sign of improvement in terms of demand.

US propylene contract prices for October settled down a significant 14 cents/lb ($309/tonne, €224/tonne) from September, and spot prices have followed suit. This, together with the sizeable volume already imported, will limit export options.

Sources said the ability to move volumes from the European system has been the market’s saving grace, but now it would be more difficult to manage volumes.

“We have been trying [exports], but buyers are not committing to new business just yet. [The] US is full and Asia bearish on China woes” a key trader said.

Weaker US propylene makes for cheaper and more competitively priced propylene derivatives – and this could also be expected to add to European demand fears, sources added.

One major derivative producer said its sales department was now warning of a very difficult month ahead.

It said this is because of “difficulties to place volumes – [it is] hard to conclude business in Asia, due to raised requirements for LCs [letters of credit] and [they have] completely stopped buying.”

It added the price drops in the US would mean heightened competition for whatever limited business there was still to be had.

Sources agreed that the prospect of more drastic cutbacks at crackers is looming in November, given what seemed to be a worsening environment for ethylene and polyethylene (PE).

“Not a lot is possible in arbitrage terms,” an integrated seller said. “Adjusting operating rates is all we have to rely on.”

The October contract price settled at €1,068/tonne ($1,472/tonne) FD (free delivered) NWE (northwest Europe) – a decrease of €10/tonne from September.

Spot prices are difficult to assess, given the lack of reported trading activity, but sources are generally pegging polymer-grade prices at about €850/tonne FD NWE.