Producers find it hard to pass on costs / Cold weather, soft markets and reluctant buyers dash hike hopes / Cost reduction and rising demand jockey for position in April
The return of winter threw a large spanner into the works for European producers of standard thermoplastics in March. With increases in the contract reference price for ethylene (up EUR 50/t), propylene (up EUR 55/t) and styrene (up EUR 27/t), producers announced price hikes across the board. In the case of PE, the target was triple-digit. Initially they enjoyed some success, but mostly the goals eluded their grasp. Margins on polyolefins and EPS dipped again as producers netted gains of only EUR 10-30/t. For PS and PVC, the price rises just about managed to cover the higher production costs.
Supply was more than adequate, despite the many capacity cuts, maintenance turnarounds and individual disruptions. There was no sign of any bottlenecks, due mainly to the frozen demand from weather-dependent industries such as construction, horticulture and agriculture. As if that were not enough, the overall economic situation continued weak. When sinking petrochemical notations were added to the mix at mid-month, many buyers were convinced that the only way for prices to go was down and thus restricted purchases to the minimum. Overall, demand declined to a greater extent than supply.
As expected, feedstocks slipped quite significantly in April, with ethylene dropping EUR 60/t, propylene EUR 50/t and styrene EUR 64/t. Unofficially, polyolefin producers are out to secure a rollover this month, but the absence of official announcements up to now is evidence of their uncertainty. Depending on how demand - and the weather - develops going forward, April is likely to end somewhere between a margin-improving rollover and a full pass-through of the feedstock benefit. PVC producers have also been talking a rollover, whereby compounds are slightly more stable, due to rising additives prices. PS producers already have announced a price reduction of EUR 40/t, which could provide a little cost relief. EPS producers are hoping to benefit from an extremely compressed insulating season in the construction industry, due to the long winter delay. This could enable them to obtain a rollover and an urgently needed margin increase.