Polymer Price Know-How: March 2022

The Russian invasion of Ukraine has added further pressure to the upward trend of energy prices, with extreme consequences for crude oil, natural gas, energy and petrochemical feedstock prices.

Compared to the beginning of February, the price of Brent Crude surged by over £225 per tonne in early March, before falling back slightly mid-month.

Whilst Ukraine is a relatively small player in terms of polymer production and consumption, Russia has become a very significant supplier of polyolefins to the Western European market over the past few years and the removal of this source through either sanctions or countersanctions would create a significant vacuum, which would require substitution from other sources of supply. Whilst US origin PE may be well-positioned to substitute missing HDPE and LLDPE volumes, any PP shortfalls will be more difficult to address as the US does not have excess capacity for export.

It is widely rumoured that some Western European polymer producers are facing a 10-fold increase in energy costs. This, combined with higher feedstock costs, is causing some producers of engineering polymers to suspend operations, instead relying upon supply from the Far East for polymer feedstock to make compounds. This move is likely to result in lower-cost materials being consumed rapidly, with the subsequent opportunity to push through the price increases necessary to make local production economically viable.

Despite the severity of the current situation, it is notable that the price levels of both Polyolefins and Styrenic polymers are below the record highs of Q2 2021 – a time when prices were being driven by the supply-demand balance for those polymers, rather than the cost of energy and crude oil.

The current geopolitical crisis is both volatile and evolving. Whilst the initial market reaction has been to increase commodity prices, the graph below demonstrates that markets are also reacting to a range of factors that have the potential to either drive prices up or down, depending upon anticipated supply and demand, and what applies to crude oil pricing may also apply to polymer prices.

Oil Prices

Oil price increases have accelerated since the Russian invasion of Ukraine.