Polymer prices - what's ahead?
Polymer prices remained stable last week amid subdued demand. The reason for the weak demand is that converters' order backlog is still not high, and they do not really believe in significant price increases, so buying in advance is not justified. In the northern part of Central Europe, there is a lack of demand, and prices are melting here. However, in the southern Central European region, there is a clear shortage of supply for polyethylene grades. Large film manufacturers are almost on the hunt for available quantities of LDPE and MDPE and are willing to accept higher prices. Polyethylene producers are clearly preparing for a price increase in March. Current feed-stock price trends suggest a price increase of 0-30 euros for olefin monomer and around 50 euros for styrene monomer. This could trigger a similar increase in polymer prices.
However, polymer manufacturers want to widen spreads, so they are preparing for polymer price increases that exceed monomer price increases. This effort will be successful in regions where supply is tight, as market prices will continue to be driven by the balance or imbalance of demand and supply. A significant and sustained price increase requires either a strengthening of end-user demand, which we do not yet expect in the first half of the year. Or a significant reduction in supply, which is already underway. However, it is not just traders and traders withholding goods that is reducing supply. Several Western European polymer plants have also shut down or are facing production problems.
However, the most significant supply-reducing effect in Central Europe will be the financial sanctions against the Serbian oil company (NIS a.d.) that will come into effect at the end of February. Since NIS a.d. has a majority stake in the Serbian polyethylene producer, it is expected that HIP-Petrohemija will not be able to enter the market even after the maintenance, which will cause a significant reduction in the polyethylene supply in the South Central European region. The financial sanctions also affect the supply of propylene in the region, forcing the Serbian PP producer HIPOL to source its feedstock from more distant sources from the beginning of May. Polypropylene producers are already facing profitability problems due to the fact that the spot price of propylene has risen by more than €200 since the beginning of the year.
The narrow supply is also being contributed to by the planned maintenance of the Czech polyolefin producer in April and May, which will significantly narrow the supply of both PP and HDPE until the end of May and mid-June in a significant part of Central Europe. Although the strengthening euro is improving the competitiveness of imported polymers from overseas, there is not yet significant import availability. Moreover, in Turkey too, Turkish traders are showing increasing interest in Central European polymers, primarily polypropylene. Overall, it can be seen that the first half of the year will be characterized by tight supply in a context of weak demand, which appears to be in balance, but there will be polymer grades whose availability will be extremely limited. This means that prices will not be able to fall significantly during the holiday season in mid-April and the first week of May.
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