Feedstock volatility, rising polymer prices

Feedstock volatility, rising…

At the beginning of last week, both “feedstock” and energy prices reached their highest levels in 10 years. The price of oil was 139 USD/barrel, NAPHTHA was 1,121.7 USD/t and the price of natural gas was 227.201 Euro/MWh. Polymer manufacturers reacted quickly to Monday's developments, and further polymer price increases of € 100-150/t were immediately announced. As a result, polyolefin prices are 200-250 €/t higher than in February. The price of polyolefins was higher for LDPE, PPC and PPR, while it was close to € 2,000/t for HDPE, PPH.

Although there was a backward correction of oil, NAPHTHA and natural gas prices on Friday, it is important to note that NAPHTHA prices are still by 20.7% higher than on 28 February. If this remains the case, preparations will have to be made for an increase in olefin monomer prices of at least EUR 200, but polymer manufacturers do not rule out monomer prices by 300 or even 400 euros higher in April compared to the beginning of March. It is likely that the significant increase in monomer prices will not happen in one step. In the week ahead, a renegotiation of March contract monomer prices is conceivable, i.e. a monomer price increase during the month is possible. This will be followed by a rise in polymer prices of at least the same rate. The current margins of polymer manufacturers do not cover their costs, so it is very likely that they will have to increase their spreads. According to some polymer manufacturers, a spread increase of at least EUR 200 is required, i.e. the increase in polymer prices must exceed the change in monomer prices by at least EUR 200.

Polymer manufacturers are preparing for further price increases, as evidenced by the fact that most people only serve customers to the extent of the allocation agreed. There are no surplus or spot items on the market. They are trying to curb their sales because of surely but unpredictably rising prices. They work with short-term, weekly or even shorter offers. In the Southern Region (SCE), daily pricing by distributors is not uncommon either.

Rising energy costs are also having a significant impact on polymer manufacturers. The energy surcharge floated since November 2021 has so far only been used by one or two polymer manufacturers. Last week, several polymer manufacturers announced that they would introduce an energy surcharge as of April. The rate varies from polymer manufacturer to manufacturer, but according to preliminary information, the planned surcharge will be between € 50 and € 500/t. But there was also a European polymer manufacturer who had already fulfilled orders in March by adding an energy surcharge of € 50.

The expected increase in monomer prices, the increase in polymer manufacturer spreads and the energy surcharge could result in higher polymer prices by as much as € 4-600 in April. This means that some of the polyolefin prices will exceed € 2,500/t. The expected protracted Russian-Ukrainian war and the resulting tightening of sanctions could increase market uncertainty and, consequently, feedstock price volatility. Thus, it is very likely that PE and PP prices will cross another historical price limit in May, reaching up to 3,000 Euros.

How do plastic converters react? Reactions are mixed, there are those who try to keep their customers and only slowly raise prices. But there are those who only serve those who also pay the prices of the finished plastic product that increased due to the increased costs. In the long run, this is good practice. The biggest problem is with converters who are bound by quarterly, semi-annual prices or by prices that are valid even for longer. It is very likely that these contracts will be renegotiated soon.

In the case of last week's prices, due to the mid-week price increases, there was a difference of 100-240 €/t between the Monday and Friday prices of the polymer producers, which is also the reason for the wide price ranges in the future.

László Bűdy
myCEPPI managing director