Imports are helping polymer buyers in Europe to partially offset the squeeze on margins as many are increasingly switching to cheaper supplies from outside Europe.
This trend has accelerated recently as the spike in enegy costs prevented domestic polymer prices from falling in line with the slowdown in demand.
The increase in competitive imports of many polymers in the past few months has eroded margins of many European producers.
Background
Most polymer producers had made considerable gains in margins during the pandemic as consumers switched spending from leisure to durable goods.
But at the end of last year, the situation began to change. A spike in gas prices started to push up raw materials and electricity costs.
The rise in energy costs forced producers to increase prices. As demand was strong, there was an overall success.
After the war started, costs increased further, fuelling the upward pressure on prices.
But since the spring, demand has been falling.
The lower demand meant producers were no longer able to offet the firming energy costs. As such, their margins started to fall, even if prices remained relatively stable.
During this period of rising energy costs in Europe, demand in China was getting weaker. This pushed down prices in the region, further opening the arbitrage to Europe.
Implications
Faced with cheaper imports, buyers have been able to limit the damage from the hefty domestic prices.
In the past few weeks, the arbitrage from Asia to Europe has been further widened due to the slump in freight rates. Container prices are now much closer to pre-pandemic levels.
Despite the help from imports, due to contractual obligations and long lead times amid the current volatile period, many buyers have been cautious.
As such, the much cheaper imports have only prevented an otherwise disastrous situation for buyers.
However, not all polymer markets have been affected equally.
For example, polycarbonates (PC) and nylon engineering resins (PA6 and PA66) prices have been stable in the past few months. But sellers have seen their margins fall and they have been unable to offset the recent rise in energy costs.
But other markets, such as polypropylene (PP) and acrylonitrile butadiene styrene (ABS) have seen a slump of more than €1000/mt. This was largely to do with competitive imports pushing down domestic prices amid lower demand.
Outlook
The current weak trends should remain in place at least until the end of the year.
But some indications of demand bottoming out and even recovering slightly in China should ease the pressure from imports on domestic prices.