24 March 2003 00:00 [Source: ICB]
Before the recent dip in naphtha, olefins producers were predicting Q2 contract price increases of at least E50-80/tonne for ethylene and E80-100/tonne for propylene. Increased feedstock and energy costs were seen as justifying these proposals. Even buyers seemed resigned to facing major olefin price rises.
Now the world looks different. 'Those high naphtha prices were obviously based on psychology and speculation, now we are seeing the real market situation emerge,' said one ethylene purchaser, commenting on the slide in naphtha prices.
'Market fundamentals are back in place. If we focus on supply and demand and current raw material costs, then a roll-over should be right for ethylene,' stated a buyer.
However, a leading olefins producer, holding out the possibility of higher Q2 ethylene and propylene contracts, said: 'When the first quarter ethylene contract was settled in January naphtha was at $315/tonne. For a large part of the quarter it has been closer to $350/tonne. Cracker margins have evaporated. This needs to be taken into consideration in Q2 negotiations'.
A buyer countered this, saying: 'The last quarter is done business. We need to move forward and focus on current cost and supply/demand fundamentals.' Another seller believes cracker operators will have naphtha inventories at the old higher prices and so Q2 contracts need partially to reflect high cost feedstock cracker economics.
'How can the last three days provide a setting for the next three months,' said an ethylene producer, commenting on buyers' attempts to exploit the slide in naphtha prices.
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