A range of chemicals and plastics markets in Europe are set to tighten in early 2024 as higher costs, related to increasing freight rates, hit the price of delivered petrochemical imports, according to polymer market sources.
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Freight markets globally have been seeing higher demurrage costs and longer transit voyage times , amid congestion in the key international waterways in recent months, with the key Panama Canal route impacted by low water levels, meaning vessel hull draft limitations and lower transit volumes.
Furthermore, security concerns in the Suez Canal area in recent weeks — with drone attacks on vessels and hijackings in the Red Sea forcing shipowners and charterers to avoid the Egyptian waterway — have been driving up costs.
The higher freight costs will have to be reflected in the price of imported commodity plastics such as polyethylene, polypropylene, polyethylene terephthalate (PET) or other intermediate petrochemicals such as ethylene glycol, styrene monomer, and reformates, market sources said.
“It’s going to go up either way. It takes an extra three weeks to loop around Africa [avoiding the Suez Canal]. It’s causing quite a few issues for the PET [producers and consumers), and for the PTA (purified terephthalic acid) guys as they source it from Asia. Costings are going to add Eur20-30/mt on the freight for any general products which is going to be a pinch for some if they don’t have a margin built in,” one trader said.
Gloomy 2024 demand outlook
Demand for chemicals and plastics has been subdued and is expected to remain so well into the second half of 2024 as the impact of high inflation and high interest rates continue to bite into household incomes, market sources said.
After a delay in closing 2024 polymer contracts, some European producers have finally reported the completion of their 2024 term agreements, after the uncertainty surrounding imports brought some buyers back to the contract market.
Sources pointed to reduced 2024 contracts being agreed on a 50% total term volume basis versus spot, down from 2023 levels of around 75%.
Due to the gloomy outlook, some buyers had looked to secure fewer European volumes in 2024 in favor of lower-cost US or Middle Eastern product.
However, market sources pointed to the freight disruptions as an incentive for some European buyers to secure locally produced material for delivery next year.
“The Suez Canal disruption may involve an additional request for the European producers as the transit time for imported material from the region will be longer,” a resins producer said.
In addition, higher expected costs may also help support European producers somewhat, by making imports more expensive, and thus less competitive against mostly naphtha-based derivative plastics and chemicals production.
Another trader said they were not that concerned about the freight disruptions, more about the weaker demand and said more spot availability next year had been factored into those contracts.
“Some producers have offered me mixed formulas, with CIF ARA,” a second trader said. “This time last year, there was little brought in from the Middle East, rather than the US. There will be little impact as he largest proportion of the volumes come from the US.”
