Supply Shortages and Global Impacts: A Deep Dive into European Polypropylene Pricing

In the first half of February 2024, the European Polypropylene (PP) market experienced a sharp price increase, extending a six-week trend due to tightening supplies, disruptions in shipping traffic through the Red Sea, and reduced imports from Asia. Geopolitical uncertainties shifted buyer behaviour away from just-in-time delivery, prompting inventory building. Input contract prices rose, and consumers were willing to deal at higher levels despite cautious minimal quantity purchases. The European Propylene markets faced volatility, impacting PP pricing. Upstream, crude oil prices rose due to geopolitical tensions and sea trade risks. The Red Sea crisis persisted, affecting freight rates and vessel schedule reliability.

In the first half of February 2024, the European PP market experienced a notable upswing in prices, continuing the trend observed in the latter part of January 2024. This six-week consecutive increase was driven by tightening supplies within the European PP market, primarily due to constrained domestic availability of PP. Persistent disruptions in shipping traffic through the Red Sea further exacerbated the scarcity, causing delays in the arrival of deep-sea parcels. PP Spot prices responded by quoting higher figures, influenced by the escalating freight rates.

The Red Sea crisis has significantly shaken the European petrochemicals industry, particularly impacting products like PP due to reduced imports from Asia. Geopolitical uncertainties prompted a shift in buyer behaviour, with European buyers moving away from just-in-time delivery practices, driven by the fear of trade disruptions. This shift has led to reduced sentiment on just-in-time deliveries and an inclination towards inventory building. In response to the scarcity of material supplies, input contract prices have started trending higher. Despite struggling with scarce material supplies, consumers have demonstrated a willingness to deal at higher price levels. However, buyers are cautious, making minimal quantity purchases and avoiding substantial inventory buildups.

Additionally, the European Propylene markets, serving as a feedstock for PP, experienced a volatile start to the year, characterized by firm restocking demand and tight supply due to outages and distribution disruptions in both inland and coastal markets. This momentum persisted into the first half of February, further impacted the pricing dynamics of PP.

In the upstream Crude Oil market, prices rose during the initial half of February 2024 due to tight supplies resulting from geopolitical tensions and risks to sea trade routes. While the Red Sea crisis persists, its impact has somewhat decreased, leading to a gradual decrease in freight rates, although they remain above the threshold limit. According to sources, vessel and shipment schedule reliability dropped for a third consecutive month in January, with the most recent downturn being more significant than the previous two months. This intricate web of factors continues to shape the pricing dynamics and market conditions for PP in the European market.

According to ChemAnalyst, the price of PP is expected to sustain an upward trajectory in the second half of February, primarily attributed to the scarcity of the product in the European market. The petrochemical industry has been significantly impacted by the Red Sea crises, leading to a supply shortage in the European PP market. However, with the effects of the Red Sea crises diminishing compared to the previous month, there is a growing anticipation of an improved trading atmosphere for PP during this period. The gradual easing of the crisis-related disruptions is likely to contribute to a more stabilized supply chain, influencing a positive shift in the trading dynamics for PP in the European market in the latter half of February.