30 March 2003 05:50 [Source: ICIS news]
SAN ANTONIO, Texas (CNI)--The fact that Southeast Asian (SEA) ethylene and propylene players need to shift to contract pricing that is not so heavily determined by spot prices has become a familiar refrain on the sidelines of the 28th annual International Petrochemical Conference (IPC).
For years, industry players and consultants have been concerned about the fact that neither naphtha costs, free negotiation nor margin sharing are factored into contract prices in the region.
But what has made the issue seem more pressing recently is the extreme volatility in spot pricing of both C2s and C3s which is making financial planning extremely difficult for Southeast Asian producers.
Of approximately 5m tonne/year of ethylene consumed in SEA last year, only 10-20% was sold on a spot basis.
"It is very much the case of a small tail wagging a very large dog. Sudden fluctuations in the very illiquid spot market is having a huge and distorting impact," said one industry source.
But with some producers tied into current contract formulas up until 2010, it will take a long time before all the talk results in any changes.
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