Polyolefin Pricing - Will Rising Oil Prices Reverse the Recent Downtrend?

The conflict in the Middle East appears to be escalating once again, bringing renewed uncertainty to global energy and raw material markets.

At the time of writing on Wednesday 22 July, crude oil was trading at approximately $93.50 per barrel. Although this remains well below the peaks recorded a few months ago, it represents a notable increase and is placing renewed upward pressure on feedstock values.

Spot naphtha prices were reported at approximately $760 per tonne. Again, this is nowhere near the levels seen during March and April, but it is still significantly higher than recent values.

Will higher feedstock costs push polymer prices up?

Although rising oil and naphtha prices would normally create upward pressure on polymer pricing, the current market appears more balanced than the headlines might suggest.

One of the principal reasons is that monomer contract prices already appear expensive relative to underlying market conditions.

Propylene provides a useful example. Its contract price in February was €965 per tonne. The current contract price is approximately €1,365 per tonne, representing a premium of €400 per tonne compared with February.

With spot monomer prices trading at a significant discount to contract values, there is evidence that current contract prices may already be carrying an unsustainable premium.

August pricing outlook

Despite the latest rise in feedstock costs, August monomer settlements may be more likely to roll over than increase significantly. Should this happen, polymer pricing is likely to follow a similar pattern.

The substantial polymer price reductions seen throughout June and into early July now appear to have stopped. The latest geopolitical developments have effectively applied the brakes to further decreases, creating a period of greater stability rather than a clear reversal of the recent downtrend.

Some producers and exporters in the United States are already discussing potential price increases for August. These ambitions may prove difficult to achieve, although their success will depend partly on buyer behaviour.

Buyer sentiment will be critical

The market's direction will be influenced by how processors and distributors respond to the current uncertainty.

Some buyers may decide to increase their safety stocks due to concerns about geopolitical instability, energy costs and potential supply disruption. This could give producers greater support when attempting to implement price increases.

However, if buyers remain cautious and underlying demand stays subdued, it may be difficult for producers to generate sustained upward pricing momentum.

My polyolefin market outlook & summary

While geopolitical developments have introduced fresh uncertainty and increased feedstock costs, the underlying fundamentals do not yet point towards a substantial or sustained increase in polyolefin prices.

Monomer contract values appear elevated, spot markets continue to trade at a discount and demand remains a critical limiting factor.

Based on the information currently available, the most likely outcome is for August monomer and polymer prices to remain broadly stable. The recent downward movement appears to have paused, but there is not yet sufficient market support for a significant upward correction.

With August settlements approaching, the market picture should become clearer over the next couple of weeks. Plastribution will continue to monitor developments and provide further updates as new information becomes available.