What goes up must come down; but when? Reviewing European chemical prices in 2021 and what to expect in 2022

Author James Elliott, Business Development Manager

The European prices of many base chemicals and polymers struck, or were near, all-time record highs in 2021.

For example, the Northwest Europe benzene contract price reached €1,364/metric tonne (mt) CIF in May 2021, the highest price this century; the Northwest Europe polypropylene homopolymer contract price climbed to €2,075/mt in November 2021, the highest price on record.

Over the past two years, a succession of unpredictable short-term issues have driven the increase of European chemicals and polymers prices. These short-term factors include and are not limited to:

  • The impact of Covid-19 and associated lockdowns
  • The difficulties in the shipping industry in which there has been a lack of container availability, delays in shipments, high container freight rates, and unexpected challenges such as the Evergiven vessel becoming stuck in the Suez Canal in March 2021
  • A series of unplanned operational issues across the industry, combined with a heavy turnaround schedule. Outages were extended owing to Covid-19 induced supply chain problems, distance working and a shortage of skilled staff
  • Pent-up demand from Covid-19 enacted lockdowns in the first half of 2020 was released in 4Q20 and through 2021, and exceeded initial budget expectations
  • A change in saving and spending patterns among the European population leading to a shift in consumption, overwhelming the supply for certain goods
  • Empty supply chains and low inventories owing to these various issues as well as a prior lack of confidence in demand in 2021
  • And, finally, volatility in energy and key feedstock markets

To be succinct, there has been insufficient short-term supply to meet the demand surge in Europe.

On a long-term basis, chemical prices are cyclical: prices increase when markets tighten through a decline in excess capacity, and prices decrease when excess capacity rises — excess capacity is the surplus after subtracting demand from capacity.

However, a decline in global excess capacity was not a major determinant in the rise in European chemical prices in 2021. In fact, reviewing Argus Analytics services highlights there was significant global capacity commissioned for key base chemicals and polymers, as shown in the corresponding chart, surpassing annual demand growth. Excess capacity for most products increased. Based on the typical long-term trend, European prices in 2021 would have been expected to decline as new global capacity surpassed annual global demand growth. Polypropylene is a representative example: global capacity increased by 7.881mn mt or 9pc year on year in 2021, which is significantly higher than the five-year annual average capacity increase (2017-21) of 4.368mn mt, and surpassed demand growth of 5.671mn mt or 7pc year on year. 

2021 chemical and polymer capacity additions vs historical average

The corresponding chart displays the LLDPE butene prices in China and northwest Europe in 2021. Through the past year, Chinese prices remained at a lower level because of an oversupplied domestic market following significant capacity additions. European prices rocketed upwards as the year progressed owing to the various short-term issues and these nullified the impact of the increase in global excess capacity from the new capacity in Asia. 

China and Asia capacity additions as percentage of global total in 2022

Argus provides in-depth data and analysis on the global chemicals and polymers markets. We help you to mitigate risk by truly understanding the market, from the wellhead to end product. Argus Outlooks give you a rolling 24-month price forecast with detailed explanations of key industry drivers.

Argus Analytics provide you with a long-term strategic planning tool including country-by-country capacity and supply/demand analysis over a 15-year timeframe. Plus, you get detailed reports outlining the key strategic issues impacting the industry during the forecast period.


The year ahead

Many of the short-term challenges linger and 2022 has commenced with European chemical and polymer prices at elevated levels. Recently European prices have found further support from higher energy and utility costs. The recent upward price trend in Brent crude and naphtha is shown in the adjacent chart. In the first half of 2022, the European market will also contend with a low stock position across many of the value chains, a heavy spring maintenance period, and further disruption from unplanned supply constraints. 

Recent crude price trend

Recent naphtha price trend

Another important short-term factor, which has evolved into a medium-term factor, is the constraints in the shipping industry. This has hindered global trade, preventing imports arriving in Europe. Argus publishes polymer container freight rates derived from Freightos container freight data within the Argus Global Polyethylene and Argus Global Polypropylene services. Container freight rates from Busan to Antwerp and from Shanghai to Antwerp were assessed at $557/mt and $568/mt, respectively, in the most recent issues of these services.

Returning to the long-term market structure, global excess capacity is projected to rise further in many chemical markets in 2022. The corresponding chart, based on data from the Argus Analytics services, shows significant global capacity additions are projected across base chemicals and polymers in 2022. In most cases, the capacity growth exceeds the global demand growth Argus is forecasting in these markets. Therefore, global excess capacity will rise in 2022. Taking propylene as an example, 10.2mn mt of capacity is due to be commissioned in 2022, an increase of 7pc compared with 2021, far surpassing the 6.8mn mt demand growth projected in 2022. 

2022 capacity additions

A key consideration with this impending wave of new capacity is location; the vast majority of projects are due to be commissioned in China. This new capacity will increase China’s self-sufficiency, reducing the dependence on imports, with ramifications for global trade flows. The corresponding chart displays the percentage of total new projects due on line in Asia and China using data from the Argus Analytics services. In the styrene market, 100pc of the new capacity to be inaugurated in 2022 will be located in China. 

China and Asia capacity additions as percentage of global total in 2022

Many of these Chinese projects are “megacomplexes”. They are fully integrated from refining through to polymers; crude oil to chemicals. As an example, Chinese private-sector petrochemical producer Zhejiang Petrochemical announced earlier this week its phase 2 project has been fully commissioned for trial operations, which will see significant capacity brought on stream across various chemical markets.

Upon the short-term challenges in the market easing, the long-term market structure through the rise in global excess capacity will have a greater influence on European chemical and polymer prices.

Markets need a stimulus to change pricing direction. In Europe, this is often driven by trade. When the trade impasse ceases — easing of the short-term challenges — the new product from Asia, whether that is HDPE, styrene or homopolymer PP, will move into Europe exerting pressure on domestic European chemical and polymer prices — influence of the long-term market structure through a rise in global excess capacity.

In the Argus Olefins Outlook service, which provides a rolling 24-month price forecast for ethylene, propylene, PE, PP and PVC around the world, this shift is anticipated in the middle of 2022. European polyolefin prices are forecast to fall as we move through the year. The European HDPE blow moulding contract price is forecast to drop by 26pc from €1,705/mt in December 2021 to €1,260/mt in December 2022. The European PVC contract price will move down because of the substitution threat from lower HDPE prices and is projected to fall by 45pc from the record €1,780/mt in December 2021 to €982/mt in December 2022. With a greater supply of polymer derivatives, European feedstock olefin demand will falter and subsequently face pricing pressure. Ethylene is forecast to end 2022 at €1,050/mt, down from €1,273/mt in December 2021.

The dichotomy of short-term unexpected challenges and long-term market structure will drive the European prices of chemicals and polymers in 2022. European prices will decline as global excess capacity grows, but the key question is when, and this depends on the short-term factors dissipating.

Argus provides in-depth data and analysis on the global chemicals and polymers markets. We help you to mitigate risk by truly understanding the market, from the wellhead to end product. Argus Outlooks give you a rolling 24-month price forecast with detailed explanations of key industry drivers.

Argus Analytics provide you with a long-term strategic planning tool including country-by-country capacity and supply/demand analysis over a 15-year timeframe. Plus, you get detailed reports outlining the key strategic issues impacting the industry during the forecast period.

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