European olefins supplies balancing out on lower production

London — The supply length in the European olefins market seen at the end of 2019 had been quickly disappearing amid lower output at steam cracker units and improving demand, sources said this week.

European polymer grade propylene was the most affected. The PGP FD NWE spot price was last assessed at Eur781/mt Thursday, up Eur63.50/mt since the end of December and hitting its highest since October 31, 2019.

Sources said the increase was partially driven by unplanned production issues at steam crackers including Shell's unit in Wesseling, Germany, and Repsol's in Tarragona, Spain.

A source said Repsol's unit was expected to come back this week, but there were no details available on the length of Shell's outage. Both companies declined to comment on the matter.

Steam cracker output was also affected by lower run rates, sources said.

A source said the weak ethylene market during the fourth quarter of 2019 had added pressure to spot cracker margins, which at the beginning of December turned negative, according to S&P Global Platts data.

This week, however, ethylene spot prices saw an uptick as "extreme discounts" were no longer seen on the ongoing supply issues. FD NWE ethylene spot prices were last assessed Thursday at Eur739.50/mt, up by Eur25/mt from the end of December.

"Current issues do have an impact, coming from a very long market especially," a source said.

Another source said: "[I] would not say it's recovered, but it's picking up little bit. It's clearly a bit tighter."

In PGP FD NWE spot offers were heard between 4%-6% discounts to the industry-settled January contract price this week, moving from double-digit discounts in December.

In addition to outages, logistical challenges due to limited availability of barges and strikes in France affecting rail tank car deliveries were also creating pockets of tightness, especially in France.

"RTCs are loading but sometimes it is hard to get material, and there is product missing in the Mediterranean area," a source said.

IMPROVED DEMAND, BUT CONCERNS REMAIN

Demand for olefins in Europe was also heard improving, as buyers returned to the market after the holiday period and began restocking.

However, concerns on underlying demand remained and the market continued to adopt a wait-and-see approach.

A source said that with a bullish energy complex at the beginning of the week due to escalating geopolitical tensions in the Middle East, he expected more pre-buying activity, anticipating an uptick in February prices.

"That sentiment has now disappeared, the feedstock cost push had disappeared," the source said.

In upstream naphtha, Platts last assessed CIF NWE at $536/mt Thursday, down from $556.25/mt Monday.

--Lara Berton, lara.berton@spglobal.com

--Ora Lazic, ora.lazic@spglobal.com

--Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com