London — Tight global container availability amid a heavy backlog in Asia has led to increased lead times and a rise in EMEA region polymer price levels, market participants say.
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Steep freight rates are increasing costs and causing challenges for buyers in Europe and Africa, leading some polymer grades to reach multi-year highs.
Amid a container shortage since November, demand for container freight looks set to remain at high levels throughout the first quarter as importers seek to refill depleted warehouses and ongoing equipment shortages dog the market. Underpinning the shortage is increased production and export levels in China as they compensate for idle months at the start of 2020 when the pandemic first bit and China imposed strict lockdowns. Many Asian exporters are keen to avoid a repeat of 2020 where pre-Lunar New Year levels of production took almost three months to return.
In the second half of 2020, a shortage of empty containers in key exporting hubs in Asia and a delay in the return of containers to the docks in the US and Europe led to equipment shortages in key exporting regions.
This situation has been ongoing for some time, with longer turnaround times at importing hubs largely to blame. With turnaround times in US West Coast ports reportedly rising from around a week to sometimes four-times that length, carriers have been desperate to rectify the imbalance of containers on global trade lanes.
As a result, there have been new strategies imposed by some carriers to not take loaded containers on backhaul trips to Asia so there is a quick turnaround to alleviate logistical delays.
Freight costs contribute to polymer market multiyear highs
Tight container availability and a substantial rise in freight costs has contributed to rising polymer prices in EMEA, already buoyed by a bullish upstream oil market and resultant strength in naphtha and LPG feedstocks.
In Turkey, offers from the Far East, normally a major supplier, were thin on the ground as traders were unable to procure material at competitive rates.
Increased freight costs contributed to Turkish low density polyethylene, linear low density polyethylene and high density polyethylene grades reaching multi-year highs, amid limited Asian offers and longer lead times for material shipped from Arabic sources.
"[Traders] are offering too high and it doesn't mean they even have material," a Turkish trader said. "Due to skyrocketing freight rates they can't handle the arbitrage. Nothing from Asia is competitive due to the freight."
African sources said increased freight and long lead-times were making material from east of the Mediterranean uncompetitive. Material from Korea was heard on offer to the continent, however, due to freight costs was offered substantially above market values.
"There are high freight costs from Saudi, and especially Korea right now," a West African source said. "The main issue behind increasing costs is [freight], demand is the same, but shipments are lacking. The empty containers are not there so freight is up."
In North Africa, offers have risen substantially due to freight and feedstock costs, despite regional demand remaining bearish. Amid limited availability from international sellers, offers were heard far above local pricing with some converters in the region heard selling material to other buyers rather than produce at unprofitable rates.
In Europe, freight costs have seen shipments of polypropylene from East Asia fall with traders saying the arbitrage was currently unworkable due to freight costs. This has further impacted PP supply in Europe, adding to an already tight market and leading PP homopolymer prices to reach their highest level since mid-2019.
"We are suffering from imports," a European trader said. "There is no cargo availability."
Limited options for derivative markets
In the acrylonitrile-butadiene-styrene markets, while December saw European spot prices surpass Chinese spot prices for the first time since August, high freight rates from Asia into the Turkish and European markets continued to make these markets unattractive to Asian sellers, who, instead opted to supply local buyers.
Talk of long lead times, meanwhile, has made Asian offers less attractive with Asian offers into Turkey heard to have fallen below European ABS spot offers. However, shorter lead times from Europe and strong demand was heard to have made European material more attractive.
In European styrene-butadiene-rubber markets, producers have enjoyed a strong arbitrage to Asia and the US despite a bearish European domestic market. However, widespread shortage of prompt container availability was heard adding to export challenges, with sellers struggling to find containers or reluctant to commit to increased costs. Unable to ship material from Northwest Europe, some exporters had been heard trucking material to ports in the Mediterranean to procure containers.
"It is a question of material rather than price now," a source said. "It is difficult to export as there are no containers."