Seller quits faltering Europe C2 bi-monthly system

28 February 2008 15:30  [Source: ICIS news]

LONDON (ICIS news)--A major German producer has withdrawn from the ethylene (C2) bi-monthly contract price system on Thursday, which came after market sources had expressed serious concern the mechanism was faltering.

 

“Our last settlement was February-March at €1,020/tonne ($1,545/tonne) FD (free delivered) northwest Europe (NWE)” the unnamed producer said, adding that all its supply contracts would be on a quarterly basis from April.

 

The lack of participants was cited as the main reason for its withdrawal with the number of players having diminished over the past year.

 

“We are trying to convince them [to continue] but fear it is a losing battle,” a major polyvinyl chloride (PVC) producer said before the announcement. “We are afraid that the February-March settlement will be the last [with this producer].”

 

This latest news now left one seller and five buyers still participating in the system.

 

This seller, a major Netherlands-based producer who settled the first ever bi-monthly for April-May 2006 made it clear that it would still offer the bi-monthly system to its customers.

 

“We are in favour of what customers want and that is choice, all our customers [involved in the bimonthly] want to keep it alive,” said a source at the company.

 

Another major German producer quit the system in the third quarter of 2007. It said that its target at the start was to bring the whole industry together into one system but that it did not happen.

 

While the PVC industry embraced the move to the bi-monthly system, the polyethylene (PE) industry did not and this was being seen as the weak point by those critical of the system.

 

“We have been running both [quarterly and bi-monthly] systems in parallel now for almost two years and have seen the merit of the bi-monthly versus the quarterly system,” said the PVC producer.

 

The debate about restructuring European ethylene contract pricing has been raging since mid-2005.

 

Industry players had been critical of the system which was first implemented in April-May 2006 because no major polyolefins producers had supported it as a viable alternative to the quarterly settlement. Additionally, players said that there was a lack of autonomy with bi-monthly settlements never straying far from quarterly agreements.

 

Both the next bi-monthly April-May and second quarter contract discussions were due to get under way in the next couple of weeks. Both buyers and sellers declined to speculate on the outcome as it was too early.

 

($1 = €0.66)

 

For more on ethylene visit ICIS chemical intelligence

By: Nel Weddle
+44 20 8652 3214

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