European propylene spot prices start the year strong on tight supply

European propylene markets have had a volatile start to the new year with firm restocking demand following December's seasonal downturn running up against tight supply due to outages and distribution disruptions in both inland and coastal markets.

At the same time, demand from domestic derivatives segments is likely to increase as the impact of reduced import supply from Asia and the Middle East -- caused by the disruptions to international shipping in the Red Sea -- feeds through to market.

"Restocking taking place everywhere, all of the warehouses are empty," a producer said, adding that "the market is tighter than expected."

Reduced production run rates and both planned and unplanned outages remain the primary pressures on domestic supply for European propylene, with production cut across the continent limiting consumer access to material.

Unplanned outages at Versalis' cracker in Dunkirk, France(opens in a new tab) and ExxonMobil's cracker in Gravenchon, France(opens in a new tab) have curtailed access to Western European material. While both sites have since returned to production, any resupply of the market will take time and may be met by strong demand from restocking customers.

Similarly, an ongoing extended maintenance at TotalEnergies' Antwerp cracker(opens in a new tab), which is expected to return in late January, and an unplanned outage at the Ras Lanuf cracker(opens in a new tab) of Libya's National Oil Corp, may continue to cut prompt material availability in Europe and adjacent markets.

Logistical disruptions

On top of supply constraints, logistical issues in coastal propylene markets have exacerbated difficulties in consumer access to prompt material, helping to stoke the volatile start to 2024.

Ship availability along the Northwest European coast was heard to be tight, with competition for ships high as consumers looked to fill the gaps in supply.

"[Even when] the product is there and sellers can offer, the main difficulty comes from the vessels, things are tight," a propylene consumer said, adding that "this has prompted many suppliers to raise prices."

As a result, costal pricing levels saw a sharp increase, with the polymer grade propylene 3-30 day spot price at Eur941/mt CIF NWE Jan. 16, up Eur102/mt on the week.

Similar pressures were seen in inland propylene markets, specifically in Germany, where strikes by the GDL train drivers' union targeting freight transport between Jan. 9-12 delayed cargoes for prompt delivery.

The impact was particularly seen in propylene markets, with disruption to the dispatch of railcars from refineries and their return for reloading of material.

"[This] might lead to a more serious situation in H2 January when all the trains need to be reintegrated into the railway system" a trader said.

Platts, part of S&P Global Commodity Insights, assessed inland propylene 3-30 day spot pricing at Eur900/mt as of Jan. 16, up Eur61/mt on the week.

Red Sea tensions weigh on trade flows

Further afield, the ongoing tensions in the Red Sea area, where Yemen-based Houthi rebels continue to launch attacks on international shipping, have weighed on import and export flows, with some ships diverting away from the Suez Canal route to longer routes.

While propylene's global trade flows are typically lower than for other petrochemicals, the heightened risks have restricted or delayed trade with East Asia and the Middle East flows since late 2023 and into the new year.

This has also significantly tightened supply on propylene derivative markets such as polypropylene or oxo-alcohols, raising expectations of increased domestic value chain liquidity.

The developments in the Red Sea are likely to halt the upswing in import volumes shown in the most recent trade data from European statistics aggregator Eurostat.

The data shows November imports of propylene into Europe increasing 70% on the month and 44% on the year to 36,556 mt, with these increases likely sparked by tight supply in the latter stages of 2023 due to reduced run rates and outages.

Exports in November, by contrast, saw a sharp drop, falling 87% on the month and 81% on the year to 4,101 mt. This fall reflects a continued lack of European competitiveness across the global value chain and will be exacerbated by the difficult shipping conditions and soaring freight costs in the months to come.