European PAO Prices bleak in March, Underpinned by Ample Market Supply
European PAO Prices bleak in March, Underpinned by Ample Market Supply

European PAO Prices bleak in March, Underpinned by Ample Market Supply

  • 27-Mar-2024 2:17 PM
  • Journalist: Jacob Kutchner

The Polyalphaolefins (PAO) price trend in the German market witnessed downward price trajectory in March, primarily due to subdued demand from the downstream automotive and industrial sectors.

In the European market, the demand for PAO from the downstream lubricant sector remained relatively stable. Domestic merchants had ample supply to fulfill the needs of potential customers. However, purchasing sentiments were moderate, as customers remained cautious due to factors such as high-interest rates and overall economic uncertainty. Despite an improvement in the automotive industry, the demand for PAO in the lubricant industry remained weak as the product was oversupplied in the market which led to decreased demand and minimized the cost of the product.

The challenging conditions in the manufacturing sector were underscored by a significant decrease in the purchase of inputs by factories. This resulted in the most pronounced decline in input inventories. However, one positive aspect of reduced input buying was the alleviation of pressure on supply chains. After lengthening in January due to shipping disruptions related to the Red Sea, supplier delivery times were shortened for the second consecutive month in March. This suggests a gradual improvement in supply chain conditions.

During this month, manufacturing output declined across the eurozone, primarily driven by a decrease in new orders for PAO from customers. This reduction in new orders led to a contraction in production levels across various industries in the region. The sentiment in the manufacturing sector has rebounded positively after a slight setback in February. However, the level of optimism in the manufacturing sector still lags significantly behind that observed in the service sector.

According to German Federal Land Transport Authority (GFLA) car registrations in Germany during Feb experienced a 1.7% growth, totaling 217,388 units compared to 213,553 units in January. The combined registrations for the first two months of the year reached 431,000 new cars, reflecting a notable 12% increase from the same period last year. This positive trend in car registrations indicates a strong start to the year for the automotive industry in Germany. Despite the uptick in auto sales, demand for PAO in the lubricant market remained sluggish as merchants had ample supply. Moreover, with crude oil prices remaining elevated, the availability of PAO remained abundant this week.

It is anticipated that the cost of PAO in the European region will decrease shortly. While upstream crude oil prices have strengthened, providing some support from the cost side, the market is currently characterized by ample supply and constrained demand for PAO. These factors are likely to contribute to a downward trend in PAO prices in the European region.

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