21 November 2007 16:18 [Source: ICIS news]
By Ed Cox
LONDON (ICIS news)--If ethylene (C2) sellers have their way then the European market can expect to see bi-monthly and first-quarter contract pricing above €1,000/tonne ($1,471/tonne) for the first time, said sources on Wednesday.
Bi-monthly talks for December-January were already under way, with one seller saying that a €100/tonne hike would not now be sufficient to cover the latest surge in upstream oil and naphtha costs.
A record high naphtha trade was reported on Tuesday at $837/tonne CIF (cost, insurance, freight) NWE (northwest ?xml:namespace>
January Brent crude levels were hovering in the high $94s/bbl. WTI was above $97/bbl, once again prompting talk that it would break $100/bbl for the first time.
Another ethylene producer already signalled last week that €100/tonne would be the minimum possible increase, before the latest rise in costs.
The bi-monthly system has come under the microscope from other sellers and buyers not involved. One large producer and consumer have already withdrawn this year, leaving just two sellers.
One of the remaining two producers already signalled it also expected to withdraw, probably in a few months’ time.
The main three declared buyers who settle prices are all in the polyvinyl chloride (PVC) business. One consumer already said a €50/tonne hike might be possible but another was not yet ready to reveal a target.
“It is true that 2007 was a better year for PVC margins than 2006 but we were still always following behind the ethylene increases," said the source.
“The whole talk from sellers is based on oil and naphtha but they are not the only ones to suffer from this."
Even those players not involved in the bi-monthly talks will cast more than one eye over the number, which will inevitably be mentioned in subsequent quarterly talks.
“The December-January settlement will once again test the credibility of the system. A significant increase is needed but we have been here before and the bi-monthly number has not been the right one. This time it’s crucial,” said one major manufacturer which remained focused on quarterly business.
Most of the involved parties, however, have said they are happy with the system, praising it as an alternative or an additional pricing mechanism, which is more fluid than the quarterly system.
This means the bi-monthly system has more of a merchant market nature than the quarterly system which is more focused on the typically backward integrated derivative polyethylene, advocates of the system have said.
($1 = €0.68)
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