Europe buyers down on €10/tonne Aug MEG hike

07 August 2008 12:25  [Source: ICIS news]

LONDON (ICIS news)--The weak Asian monoethylene glycol (MEG) market supports a decrease in Europe rather than the initial €10/tonne ($15/tonne) contract hike seen for August, buyers said on Thursday.

“We are not following it, not at all,” said one large buyer. "We see the lower Asian September nomination and low Chinese spot prices and don’t see a reason why Europe should go up."

The source was referring to MEGlobal’s $150/tonne drop on its nominated Asian contract price for September, adding: "If Asian producers have reached the cost floor for production why shouldn’t those in Europe do the same?"

The Asian nomination came after a German producer and consumer settled the August Europe contract at €950/tonne FD (free delivered) NWE (northwest Europe) on upstream cost pressure from the record high third-quarter ethylene contract.

The European contract market is typically heavily influenced by Asian price direction. Talks between remaining contract partners continued.

August Asian contracts had been nominated at a rollover from Shell and SABIC with MEGlobal up by $40/tonne, with spot prices falling steadily to below $1,000/tonne CFR (cost and freight) China on a lack of demand.

Rarely has the European market been more split between low Asian MEG prices and high domestic raw material costs, which have led some producers to reduce output, ahead of planned maintenance.

Rising European spot prices created an open arbitrage window with Asia, with traders and buyers looking to source attractively priced imports.

Several cargoes have been agreed over the past two weeks but a lack of shipping space has prevented more business.

Despite cutbacks, MEG contract customers reported adequate supply, and expressed little interest in entering the spot market, with net contract levels heard to be below spot.

“Traders are telling us not to stock up a lot in August because September will drop,” said one truck spot consumer.

($1 = €0.65)

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By: Edward Cox
+44 20 8652 3214

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