Polymers shortage plague 90pc of European converters

Polymer resin supply shortages have hit 90pc of converters in Europe, endangering the production of various end products, the European Plastics Converters (EuPC) trade association said this week.

"This situation is threatening the economic survival of numerous SMEs (small and medium enterprises)," which total more than 50,000 in the European plastic converting industry, EuPC said in a press release.

The supply crunch on polymers has been in the making since the fourth quarter of 2020, when owing to the supply length in the market, imports of many polymers fell to much lower levels compared to historical figures — with Europe being a net importer for most polymer grades — while exports out of Europe simultaneously increased amid the regions' competitive pricing. This quickly cleared out the length for many polymer grades in the European market, and most European polymer prices increased substantially at the onset of 2021.

Month-on-month three digit contract price increases of many polymers has become a recurring trend this year. Prices and producers' margins touched record highs in March, and yet again in April. The supply crunch in Europe has been the most severe for low density polyethylene (LDPE) and polypropylene (PP).

So far in 2021, the Argus deltas for freely negotiated contract prices have cumulatively increased by €890/t ($1,065/t) for LDPE and €865/t ($1,035/t) for PP homopolymer. These are increases of 68pc and 80pc, respectively, when compared to the contract prices for the grades at the end of 2020.

Spot prices have also jumped significantly in the meantime, with the ddp northwest Europe assessments this week at €2,200-2,300/t ($2,632-2,752/t) for LDPE, and at €2,050-2,100/t ($2,453-2,513/t) for PP homopolymer. This represents an increase of 77pc and 69pc when compared with the spot values of €1,245-1,295/t and €1,200-1,250/t, respectively, on 31 December 2020.

The increases came as technical problems at plants led to numerous force majeure declarations in the first quarter — adding to the list of long-running plant outages —for some polymer grades, many of which remain in place so far. This was exacerbated by no meaningful increase seen on imports into Europe, at first due to the large-scale, weather-related disruptions in the US Gulf region in February, and recently because of shortages on shipping containers out of Asia. Many carriers in east Asia have lately been unable to offer any spot business on the westbound route to Europe. This has led to a disconnect in global prices, with markets in Asia being under some bearish pressure for some polymers in recent weeks.

Wide spreads attract China PP imports

With PP raffia prices this week at $1,250-1,300/t cfr China, reports were heard of Chinese-origin PP homopolymer/raffia imports being worked at €1,600/t ($1,914/t) ddp Europe, for June arrival. But east Asia-origin PP imports into Europe will be limited in June, and volumes now being exported out of that region could be expected for July arrival in most cases. By that time, the European pricing dynamics might have changed as supply constraints in the region are gradually overcome. While this might deter some market participants from taking on the risk of working such long-haul imports into Europe, it remains to be seen how much traction PP exports out of east Asia gain in the coming weeks.

This means that the dominant position of European producers on sustaining high PP prices appears unchallenged for much of the foreseeable second quarter. At the very least, PP producers appear confident of European fundamentals remaining strong in May. But concerns are now being raised on how many buyers can afford PP at such record highs, which are now adversely affecting the economics of converters' operations. In the worst case, further demand destruction could loom on the horizon, which brings about the immediate-term equilibrium of the market.

A sense of caution also prevails among market participants on whether May could mark the peak of European PP prices. But so far many buyers are still looking to cover shorts in April and have been heard chasing every tonne of PP available in the market.

By Sam Hashmi