James Elliott, talks to polyolefins experts Alex Sands and Sam Hashmi about European polyolefins contract pricing, including insights on:
- October contract price settlements and early indicators for November
- Why we had to wait several days for the November ethylene and propylene settlements and what this means for PE and PP
- What the latest electricity prices mean for polyolefins costs and margins
- The Argus contract price methodology and why it doesn’t include energy surcharges
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Good Morning and Good afternoon. Welcome to this "Chemical Conversations" podcast on the polyolefins markets in Europe brought to you by Argus Media. I'm James Elliott, Business Development Manager for European Chemicals at Argus and I'm joined by Alex Sands, Senior European Editor from our Chemicals business, and Sam Hashmi, Global PP Editor.
JE: Sam, can you set the scene for where our October price settlements settled first of all …
SH: October marked something of a turning point with the first increase in contract prices since April. This also came despite falls in the monomer settlements for October. Producers took a firmer stance on recovering, or at least preventing further declines in their margins. Largely as a result of the higher electricity costs. Now, these electricity costs have historically been relatively stable and a small part of their costs, but with recent increases, they had quite an impact on producers’ margins. There was still a mixed picture on contract settlements in October, with some buyers insistent on decreases and others accepting additional electricity charges proposed by producers in full. In most cases, the settlement fell somewhere in between. This left Argus price markers for European contracts on PE between 1415 for HDPE, 1585 for LLDPE butene and 1775 for LDPE, before any discounts. In polypropylene, homopolymer and copolymer contract markers were at €1505/t and 1575/t, respectively, again before discounts.
JE: Alex, for the upstream side to polymers we had to wait several days before the ethylene and propylene settlements for November were known. What was going on?
AS: Hi James, indeed it was unusual that we had to wait until the 3rd and 4th of the month to hear where the monomer contracts were headed. While some public holidays in parts of Europe contributed to the delays, they really reflected the challenging market situation a
Alex: The energy crisis has certainly been something new for the markets to deal with. Previously they were a stable and relatively small contribution to costs, it was not really a factor in discussions of sales and prices for PE/PP. In recent months the impact on costs has often been even more significant than feedstocks or market balance. Many producers announced surcharges to try and recoup costs, but also as a way to simply highlight the issue to buyers. The response to surcharges was very mixed. Some customers accepted them, but others have flat out rejected them. Because of this mixed response we took the view to exclude explicit surcharges from our assessments. This was also to avoid the risk of double counting where a surcharge is included in the index and then applied on top in any indexed contracts. There is a difference in the way contracts are structured and a surcharge may be more applicable to a feedstock linked contract. But our assessments are of freely negotiated contract prices. And what we have seen in October is a move towards electricity costs becoming part of the negotiation. So in this instance we are beginning to see electricity costs affect the assessments of our freely negotiated contract deltas. This was part of the reason our October contract markers increased, despite the fragile market situation and the decrease in October monomer contracts. We anticipate this will continue, with both buyers and sellers keeping a close eye on electricity price developments and using them in their discussions. Electricity prices did decline in October and maybe something buyers will try to use in their negotiations this month. But of course they remain very high historically and prone to sharp increases depending on developments in the Russia-Ukraine war and potentially colder winter weather eventually arriving.
A lot of important factors for our listeners to consider from your answers today Alex and Sam.. Thank you for sharing your insights.
If you would like a discussion about the polyethylene and polypropylene markets and how we assess prices at Argus please email us at email@example.com
Thanks for listening.