European polymer prices rise to record this week on supply chain shortages

New York — European polymer prices hit record highs this week and are expected to continue to rise as the impact from an already-constrained supply chain was further enhanced by perfect-storm market shocks.

Tight global supply following freezing weather at US Gulf Coast production facilities in February further limited global exports when supply was already extremely tight, while already exorbitant container freight costs and a jump in olefins costs in January/February added to the mix at the start of March.

European low-density spot prices climbed to Eur1,760/mt, up 81% since Nov. 9 when LDPE FD NWE spot was assessed at Eur900/mt, according to S&P Global Platts data.

It's been a similar pattern of price increases for other polymers, such as polypropylene, polystyrene, and ABS.

Pressure from increases in feedstock costs, particularly the Eur501 spike in the styrene contract price for March, led to a further rise in the European ABS spot market.

FD NWE spot prices were assessed at Eur2,575/mt March 3, up Eur235 on the week, the highest level since Platts began assessing ABS.

One polyethylene producer said that it had to reassess its original plan to raise March prices by Eur250/mt to Eur300/mt now given current demand levels and said that it was now ready to close its March order book in the first week of the month, given supply shortages.

Trading sources said that in this tight market buyers needed to be quick — if a customer does not place its order when first offered, it is unlikely to get a second chance to purchase it, while anyone without a contractual commitment will likely not see any spot volumes.

"We have over 90% of our sales target in, we had to cut tens of kilotons from the original demand order ... we have made an overview on what the maximum is we can supply. The allocation is reduced versus the original plan," a producer source said.

Taken together, all this threatened the economic viability of some plastic converters, already grappling with a change in demand patterns since the start of lockdown.

Record prices threaten economic viability of some plastic converters

The price increases seen made it difficult for some converters to trade as the record-high prices meant that credit facilities were being limited amid the risk that potential price volatility entails. This meant that converter would likely have to reduce or stop production altogether

One polymer converter pointed to the greater restrictions placed on purchasing power as credit facilities were being strained. He gave the example of a credit facility of about Eur300,000, of which perhaps was now down to 50% as credit managers, scared by price volatility, were forced to turn down the exposure.

"A lot of plants have stopped, [there is no] availability of empty containers, and the doubling of freight. We will have to manage this until the end of June. in July more offers [are expected] in the market [followed by a] strong and dramatically fall in price in September," the converter said.

One trader accepted this was part of the current market dynamic — "Prices are definitively getting out of control which is causing ... some problems for the converters," the trader said.

"Either you have the customers who are forced to switch off their machines or you have customers simply not getting enough material (doesn't matter about the price)."

The question on everyone's lips right now is when will prices start to ease. While the immediate answer from some would be that would depend on when we finally see pre-pandemic lockdown US export flows resume, others said that this was more complex. Estimates now range from the summer to the end of the year.

Supply shortage may take some time to ease

"We've heard some saying in May it will turn (with the expectation that the US problem will be solved till April) and others (heard it several times out of Germany) think that this situation can easily last till September if not even the entire year since (all regions are) currently suffering with production issues," the trader said.

"The latest forecasts are saying that the freight situation will only get better in the fourth quarter as it simply takes too much time to have all the empty containers [back] again equally spread [around] the world.

Others also pointed to potential complications up the supply chain, from the larger-than-normal European cracker turnaround season set to start in the second quarter. Some facilities' schedules are delayed from last year becasue of the pandemic. With a higher number of petrochemical plants going down for maintenance, the likelihood of delays to their start-up could add to the supply tightness.

"This will take away some [olefins] feedstocks and producers have not really been able to build up stocks," the trader said