FocusReaction follows Europe Q3 C2/C3 contracts

27 June 2007 17:04  [Source: ICIS news]

By Edward Cox

 

LONDON (ICIS news)--Reaction to third-quarter ethylene (C2) and propylene (C3) contract settlements was filtering through from market participants on Wednesday afternoon.

 

As usual, some disappointment was noted from both sell and buy sides, although contracts quickly received support from many key industry players.

 

First to settle was the ethylene contract, agreed at €925/tonne ($1,250/tonne) FD (free delivered) NWE (northwest Europe), up €35/tonne, on Wednesday morning.

 

Within a couple of hours, a number of key sellers and consumers said they had followed this price.

 

One large producer however, said it was disappointed with €925/tonne, adding that it would hold out before following. It said it had been confident it could have achieved a higher price, justified by ongoing pressure from upstream naphtha costs.

 

A second seller said that €925/tonne was the absolute minimum acceptable level.

 

Conversely, a large consumer said that the settlement was too high, describing it as "a gift to producers".

 

The buyer said that the third-quarter price should have been below the June-July bi-monthly level, agreed in May, also at €925/tonne FD NWE, up €40/tonne, particularly as naphtha costs had fallen in the meantime.  

 

Current long ethylene prompt supply and uncertainty over derivative demand in the summer meant a €35/tonne quarterly increase was too much, said the source.

 

The tone was similar in the propylene market, after initial third-quarter settlements at €878/tonne FD NWE, up €28/tonne early on Wednesday afternoon.

 

Again, the hike was based on firm upstream costs, with customers countering this with talk of ample supply over the next three months.

 

Sellers have consistently said that recent balanced-to-long C2 and C3 markets would tighten when cracker shutdowns came at a number of units in August-September.

 

One producer said the greater increase seen on ethylene was fair because one of the largest units to undergo maintenance would be the 820,000 tonne/year ethane-based, ethylene producing ExxonMobil/Shell cracker in Mossmorran, the UK, due to shut down in August for at least 30 days.

 

The lack of production would impact ethylene but not propylene availability, the source added.

 

A manufacturer said the €28/tonne increase was bad news for margins against naphtha and that it did not reflect the likely firmer propylene supply situation later in the third quarter.

 

Another seller agreed, saying that derivative polypropylene demand should remain healthy over the coming three months, despite the imminent closures of two derivative plants.

 

Buyers had been pushing for closer to €20-25/tonne hikes, saying that these best reflected current market fundamentals.

 

The actual €28/tonne figure was unusual, said one, who said it would usually be a more rounded number, an indication of just how difficult talks had been this time, it added.

 

Despite the mixed reaction to the two settlements, by late afternoon many sources were glad that contracts had been agreed and were looking forward to see how market fundamentals would change in July and beyond.

 

($1 = €0.74)

 

By: Edward Cox
+44 20 8652 3214

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