FocusEurope talks open on C2, C3 contracts

14 March 2008 12:22  [Source: ICIS news]

By Nel Weddle

LONDON (ICIS news)--Opening discussions over European ethylene (C2) and propylene (C3) second-quarter contracts got under way this week and the gap between buy and sell pricing ideas was smaller for C2 than on C3, market sources said on Friday.

"We have had some initial discussions," said a major producer, adding that it was clear that negotiations for ethylene would be easier than those for propylene.

Some sources said that the recent developments on crude and naphtha markets with record highs being reached virtually every day would have an impact on second-quarter settlements. Although naphtha gains were largely negated by the weak US dollar, crack spreads were such that many expected naphtha prices to increase further.

On ethylene, some sellers were hoping to achieve an increase based on upstream costs and what they viewed as a balanced supply and demand market situation.

For the first quarter, ethylene was settled at €1,023/tonne ($1,598/tonne) FD (free delivered) northwest Europe (NWE).

Demand for C2 was still good, with "nominations at a high level, although no longer at maximum levels", according to one seller.

However, one consumer reported that it was seeing some indication that end-users were beginning to cut back on derivative volumes although at this point it was not clear whether this was temporary or a sign of a more sustained situation.

Another consumer said that it had already adjusted rates on one derivative to minimum levels and that more dramatic cutbacks would be necessary if there was no relief in the contract.

Few sources talked specific numbers for the second quarter but increases in the region of €20-30/tonne were mooted. Others said that a more realistic result would be anything between a rollover and a small €10-15/tonne increase.

Propylene was still seen as problematic with buying and selling ideas wide apart.

Consumers were quite firmly calling for a decrease from the current €945/tonne FD NWE contract value.

Not only was propylene itself weak fundamentally amid supply length and spot numbers which had been sustained below net contract values but downstream polypropylene (PP) was being described as dire. PP accounts for about 60% of propylene demand.

"We are bracing ourselves for some tough discussions," said one integrated polyolefins producer. "It is a dramatic situation [for PP] in terms of length. NWE demand itself is not bad it is the fact that export markets are closed."

Some were expecting PP prices to be back to December levels by the end of the first quarter, with €30/tonne decreases already being seen for March in some cases.

Sellers were keen to maintain cracker margins and one said that a "reduction [in the contract price] would put crackers at risk". Operating rates would have to be cut back it said but presently, there was no reason to talk about cutting rates.

The good reliability of European crackers was a factor with few unplanned issues evident. The planned turnaround schedule for 2008 was also smaller than in the last two years and both C2 and C3 were on the long side of balanced, although propylene more dramatically so according to sources.

Again, few sources were willing to peg specific numbers but decreases in the region of €30/tonne were talked by a couple, while others said a rollover or a minimal decrease.

Market players remained hopeful that the first settlements could emerge as early as next week.

For more on ethylene and propylene please visit ICIS chemical intelligence

($1 = €0.64)

By: Nel Weddle
+44 20 8652 3214

< previous article(ICIS Chemical Business podcast November 2, 2009)

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly