02 September 2008 18:52 [Source: ICIS news]
By Gene Lockard
HOUSTON (ICIS news)--Deadlock in the US ethylene glycol (EG) spot barge market appeared to have broken after a major producer dropped its price 10 cents, industry sources said on Tuesday.
MEGlobal’s announcement appeared to end a lengthy wrangle over feedstock volatility as the spot EG market attempted to cope with whipsaws in crude oil prices, they said.
The producer announced late last week a new EG contract benchmark of 55 cents/lb ($1,213/tonne, €825/tonne) for all grades of EG, including fibre-grade (EGF) and industrial-grade (EGI) product.
That was well under the August benchmark of 65 cents/lb, and could break the spot barge log jam, a trader said.
Spot barge EG prices are 49-50 cents/lb, according to global chemical market intelligence service ICIS pricing.
However, since late July, EG spot barge activity has been light to non-existent as producers tried to hold on to price gains following the run-up in feedstock and energy values earlier this year.
Buyers had pushed for price cuts amid the reversal in the crude oil market seen in recent weeks. With MEGlobal’s decision to reduce September values on the coattails of dropping crude oil prices, spot barge prices were expected to shift in buyers’ favor.
Earlier this summer, West Texas Intermediate (WTI) crude oil prices rocketed up almost daily, reaching a record-high of $147.27/bbl on 11 July.
That helped push EG feedstock ethylene net values to 74.5 cents/lb ?xml:namespace>
With record-high crude oil and feedstock prices stoking production costs, EG producers pushed through a 4-cent price increase in July, resulting in an average contract price for EFG of 61 cents/lb.
However, since then, sluggish demand from the lacklustre economy and a drop in energy prices prompted buyers to push for a cut in prices. WTI prices hit a low of $105.46/bbl in early trading on Tuesday.
Producers, noting that current inventory was produced when production costs were higher, were in no hurry to reduce prices.
They cited an increase in demand with the arrival of the antifreeze buying season, and the possibility of increased volatility in the crude oil market as the most active time of the hurricane season arrived.
As Hurricane Gustav approached the US Gulf production region, crude oil prices were poised to rocket up on fears of prolonged supply disruptions and rig damage. However, as Gustav weakened, the threat to supply dissipated, resulting in a 9% drop in crude oil on Tuesday, compared with last Friday’s close.
With Gustav’s passing, the market appeared resolved to accept stormy price movements as inevitable as the hurricane season itself.
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