<article><p class="lead">Petrochemical producer Borealis has told customers it intends to implement a €180/t ($176/t) energy surcharge in Europe on supplies of polyolefins from 1 October.</p><p>The company attributed the decision to "significant energy cost increases" ahead of a potential energy shortfall faced by Europe this winter. "The unprecedented scale of developments now exceeds our ability to completely absorb these additional costs internally," it said in a letter seen by <i>Argus</i>.</p><p>The company added that the surcharge will be valid until further notice, and could face further revisions in "case of a further substantial change in energy cost" — based on the German European Power Exchange (EPEX) spot price.</p><p>The development follows other European polymer producers making similar announcements. <a href="https://direct.argusmedia.com/newsandanalysis/article/2367346">LyondellBasell announced a €160/t surcharge</a> in Europe on supplies of polyethylene (PE) and polypropylene (PP) from 1 September, which would face a monthly adjustment based on EPEX price movements. But <i>Argus</i> understands that many buyers had already rejected these surcharges, given the depressed market fundamentals and cautious demand offtake from buyers throughout the third quarter.</p><p>Mixed views were heard on whether Borealis will be successful in its efforts to implement the surcharges. Some market participants were of the opinion that freely negotiated contract and spot prices of PE and PP will face increases in October without a surcharge being agreed. And energy related surcharges were more widely being applied for contracts with monomer-linked formula pricing. </p><p>With the European economic outlook deteriorating, hardly any improvement on fundamentals could be foreseen in the fourth quarter. Market participants are now focused on defending their profits and financial liquidity, with the value chain focused on destocking efforts and keeping procurement on a hand to mouth basis. Given that a meaningful rebound in demand appeared unlikely in the short term, most producers have stepped forward with increasing prices and widening margins, shifting the focus away from defending their market shares.</p><p>Many European producers had already cut down their plants' run rates as they faced a supply overhang. <i>Argus</i> understands many plants had been running at reduced run rates, close to their operational minimums. Some producers have reinforced their stance this week that they are prepared to further reduce production in October — where possible — in case buyers do not accept price increases.</p><p class="bylines">By Sam Hashmi</p></article>
