Annual customer conference

The PP and PE markets have extended their slight increase into the second month as participants in the regional polyolefin market gradually return to work after a long holiday this week. The summer lull has been overshadowed by restricted imports and disruptions in the region, paving the way for price hikes in the slowest trading month of the year.

Price hikes are in line with monomer volatility applied to August trading

European market participants have experienced reduced import flows amid production disruptions and stalled logistics, boosting the confidence of domestic suppliers. Both the PP and PE markets have seen slight increases, reflecting a slight decrease in supply, with August transactions closing more than 20 EUR/ton higher than the previous month on the contract market.

Buyers mainly overlook spot transactions as they have already made some purchases in July. Meanwhile, weak derivative demand and the desire to achieve year-end bonuses have shifted the focus to the contract market.

However, suppliers have had to step back from initial price increase demands of up to 50 EUR/ton amid slow trading activities. They have been unable to recover profit margins, despite having more stable sales volumes amidst reduced imports. A regional supplier commented: "We tried to raise prices by 50 EUR/ton from the start, then reduced to 20 EUR/ton in line with the monomer. However, demand in August is still better than in previous years. The lack of alternative solutions has driven demand for European materials."

Some PP producers are in an unavoidable situation

In addition to disrupted imports, production issues occurring and being refreshed across the region have overall controlled total PP supply. Planned and unplanned shutdowns have further increased disciplined operational capacity cuts. Unavoidable cases regarding PP output from Total, Ineos, SABIC, and Exxon continue until mid-August. Meanwhile, Borealis has declared unavoidable issues with PP from Kallo, Belgium due to technical problems at the end of July.

This has clearly supported domestic producers, with PP types slightly tighter than PE.

Storms restrict US PE imports

PE shipments from the US, until now the largest PE supplier to the EU27, have been disrupted due to production issues and storms. Some PE types have been tightened as US producers are believed to have stockpiled to alleviate potential production disruptions. Limited volumes from the US have helped erase low prices, with many buyers relying on domestic purchases to meet their needs. PE allocations from South Korea and the Middle East have also been restricted.

In Europe, ExxonMobil's unavoidable situation regarding LLDPE output from France has been effective since late May. In addition, there will be planned maintenance shutdowns from September to October.

Supply prospects show no signs of easing amid plant closures

Supply prospects within the region have not loosened amid broader restructuring plans to gradually phase out Europe's outdated oil refineries. European oil producers are announcing strategic assessments to increase profits amidst cost pressures, low demand, and changing regulations as companies witness declining  profits .

While many plants are closing earlier than expected, the transportation crisis only delays or mitigates rationalization processes.  ExxonMobil  will close the Gravenchon cracker plant and PP/PE plants by the end of 2024, while downsizing the LDPE plant in Belgium in early next year. <  LyondellBasell   has recently outlined plans to review assets in Europe.

What to expect in September?

The European PP and PE markets have returned to a cautious upward trend after the summer break. The slight price increases reflect current supply-demand realities, while predictions for September exclude the possibility of significant price hikes.

Contradictory monomer forecasts, considering sharp oil price fluctuations and recent increases in the propylene and ethylene spot markets. However, major suppliers will approach the market by raising prices to restore their profit margins, with somewhat limited supply due to inland transportation and disrupted maritime logistics. Freight rates are expected to remain high until early 2025 after peaking in mid-July, while market participants in the South are struggling with disrupted deliveries from Northwest Europe.

They also rely on increased traditional buying demand from September. However, it is still too early to say whether they can raise prices as post-summer restocking activities will be the deciding factor.

On the other hand, some market participants are more cautious, monitoring developments in the import market. If import flows resume amid reduced freight rates and recovering production volumes, this will put pressure on regional producers' price increase efforts. In fact, one market participant said: "European converters have become less conservative in sourcing from the import market."