Market and product

European polyolefins market confidence has fallen dramatically in July, analysis of the July ICIS Chemical Market Confidence Index showed on Thursday, with all indicators except future order book expectations over the next 12 months now in sharply negative territory.

This is particularly true of future profitability and future business conditions expectations, which saw the sharpest falls in confidence compared with June.

The sharp bearishness on profitability, both current and future, comes despite improving polyethylene (PE) and polypropylene (PP) margins in the week ending 22 July – the week in which the CMCI was conducted – as shown in the ICIS PE and PP margin reports.

A 4.0% decline in naphtha feedstock costs helped increase Europe PE producer margins during the week ended 22 July, the ICIS margin report showed on Monday.

Naphtha costs declined to the lowest level since 15 April and boosted integrated contract margins by 4.9% for low-density PE (LDPE) and by 5.3% for high-density PE (HDPE). Co-product values gained slightly.

Integrated contract margins for LDPE and HDPE are at their strongest since 6 May.

Europe integrated polypropylene (PP) margins based on naphtha rose during the week ended 22 July on lower feedstock costs, the ICIS margin report showed on Monday.

Integrated PP margin for naphtha rose by 3.6%, as feedstock costs fell by €30/tonne. The margin expanded despite domestic PP prices falling 0.7%. Co-product credits inched up. Naphtha-based margins are near their highest point since early May.

Spot European PP prices are now among the lowest in the world, if not the lowest, and because of this some sources were now expecting prices to rally by September as imports would be falling as volumes were directed towards Asia rather than Europe. With PP pricing so low in Europe, traders are having difficulty getting hold of material at workable levels.

The spread between ethylene and PE has decreased in the past two months, but remains healthy, and is still well above the quarter four 2014 level. Production rates in Europe are still thought to be high because of this. Some producers are confident that higher prices in Asia, coupled with lower prices in Europe, will bring a halt to imports, and by September the trend will change. There was some hesitation in Asia last week, however, and a change in trend could occur, said sources.

The CMCI bearishness mirrors that seen in the PE and PP sentiment indexes in the ICIS consulting and analytics forecast reports published two weeks ago.

ICIS Analytics and Consulting also expect falling polyethylene margins in the mid-term, although they expect some gain in margins in the mid-term.

“Some margin recovery is envisaged in September. Thanks to the forecast increase in purchasing activity, producers will be effective in retaining the expected monomer drop at least, or in other words in recovering some of the margin lost in July and August. According to ICIS Consulting, the recovery is likely to be temporary, and a stronger ethylene price may affect margins increasingly during 2017. Greater competition from imports will affect European sellers’ ability to pass the ethylene increases down to their customers in response to growing costs,” the analytics and consulting team wrote in the July polyethylene price forecast report.

And in the PP forecast report they wrote: “The European polypropylene (PP) scenario remains weak for this year, with the domestic price estimated at €1,171/tonne on average from July to December, however slightly above the €1,163/tonne average in the first half of 2016.”