What was 2023 like? In fact, it could have been worse. Fortunately, energy prices normalized, inflation began to decrease everywhere in Europe, and the economic downturn was not significant either. But the uncertainty and fear of recession remained with us. The general economic situation is slowly improving, falling inflation will probably be followed by interest rate cuts in the Euro zone and outside the zone as well. However, the war stayed with us, and now not only in Ukraine, but also in the Middle East. The risk of attacks affecting transport routes and disruptions affecting supply routes is increasing.
However, focusing only on the European economy, the biggest challenge of 2024 is whether European industrial production and consumption can be put back on a growth path? European polymer production is basically export-oriented; in 2021, we produced 57 million tons of polymer in Europe and only consumed 50 million tons. However, the situation is changing, the export of European polymers is almost impossible due to the relatively high energy and feedstock prices. Just for comparison, North American chemical manufacturing costs are nearly 55% lower than European ones. Added to all this is the almost 6% [1] decline experienced by European industry in 2023 .
We expect oversupply, selling pressure and cautious buyers in 2024 as well. Converters will operate with smaller polymer stocks than usual in 2024 as well. They seek to maintain purchasing flexibility while avoiding risk. This is also supported by the fact that at the end of 2023, polymer manufacturers were able to sign fewer contracts than they had planned. 2024 will be a spot year. Which means both volatility and changing customer purchasing habits.
The volatility will not be comparable to that experienced in 2021, we do not expect sharp monthly price increases of several hundred euros. This could only be deviated from if the Strait of Hormuz or the Suez Canal were closed. In this case, we should expect a significant increase in the price of oil and other "feedstock".
The most likely scenario, which is true for all the polymers we examined, is that in 2024, prices will change in relatively short price waves of 1-3 months, in a relatively narrow band, according to the logic below. When prices are low, as is the case now when imports stop, many European manufacturers also reduce their production and availability drops. This gives European manufacturers the opportunity to raise prices. However, due to weak demand, price increases cannot be too steep. Moreover, the price increase is immediately offset by the fact that the higher price level immediately stimulates imports and European production. Thus, a full price wave from the bottom to the top cannot be larger than €3-400, but the most likely wave is €2-300. The duration of the price wave largely depends on the duration of sea transport and the restart of European factories. The first wave of prices will probably roll through the markets between the beginning of February and the end of April. At that time, a "high-price" period is expected, after which we expect a permanently "low-price" period between mid-May and mid-August. Then the autumn can bring a recovery, possibly a more permanent increase in price levels. At the beginning of January, efforts to raise prices are already visible, and there was even a Central European manufacturer that already raised prices at the end of December. The successful January price increase is hindered by prolonged vacations, most companies only start production in the week starting January 8. However, if not in January, a successful price increase of 30-50 euros can certainly be expected in February. This can increase demand and slightly raise prices as early as in the second half of January. Purchasing decisions in 2024 are likely to shift to the middle of the months when converters have a clearer view of the market situation and prices.
