High Freight Costs Offset Low Demand, Keeping Italian ECH Prices Stable Entering July 2024

The Italian Epichlorohydrin (ECH) market defied expectations in early July 2024, exhibiting remarkable stability despite a confluence of forces pushing prices in opposite directions. This stability occurred even as the downstream construction sector, a key consumer of ECH, continued to experience a decline. This stability was attributed to high logistical issues including a port strike in Hamburg along with the rise in freight charges which certainly balanced the supply and demand to settle at USD 2270/MT, ECH CFR Genoa, Italy during the first week of July 2024.

The construction sector’s sluggish performance was attributed to several factors which affected the ECH demand in Europe. High inflation across Europe has eroded consumer spending power, impacting demand for new buildings and renovations. To combat inflation exceeding its target, the European Central Bank (ECB) raised interest rates. This move, coupled with a general economic uncertainty, dampened construction activity, particularly residential projects, as borrowing costs rose. One key factor was the declining price of propylene, a crucial raw material for ECH production. This decrease has further reduced the production costs during this timeframe. While these factors would traditionally lead to a decrease in ECH prices, other market forces intervened to maintain stability.

Despite the low downstream paints and coating market, rising freight charges have offset the decline countering the downward pressure of ECH. This surge followed the Eurozone election and the German strike, both of which disrupted transportation networks. Existing global supply chain issues further exacerbated the situation, leading to substantial increases in freight charges. Additionally, seasonal demand for ocean freight from Asia, potentially driven by European attempts to restock and concerns about labor disruptions, strained the already overburdened supply chain. This burden was further compounded by high freight prices resulting from port congestion. This congestion impacted both regional and global markets, with increased transportation costs significantly influencing market sentiments of ECH.

The net effect of these opposing forces was a balancing act. The decrease in demand from the downstream paints and coatings industry, due to the construction sector's slowdown, was offset by the limitations imposed on supply due to the rise in freight charges. Essentially, the market found a new equilibrium point. While demand remained low, the high cost of transporting ECH prevented a significant price drop.

As per ChemAnalyst, the ECH prices in Italy are expected to climb high during July 2024 amidst High freight charges due to the arrival of the monsoon which could disrupt the trade flow. Moreover, the ongoing German port strikes could potentially cause hindrances in supply chain dynamics.