29 September 2008 16:00 [Source: ICIS news]
MONTE CARLO (ICIS news)--Hopes that the European olefins industry would adopt a monthly contract system are fading fast after failing to find support from a key net buyer, market sources said on Monday.
Proponents of the system had been pinning their hopes for an industry-wide move to monthly contracts on the support from key consumers and in particular a major integrated polyolefins producer.
This producer officially signalled it would not advocate a move away from quarterly contracts.
Earlier attempts to move the olefins industry to a monthly had failed due to the lack of consumer support.
Francois Cornelis, president of French producer Total Chemicals, said in a keynote speech that olefins contracts would have to remain quarterly so that crude and naphtha volatility could be absorbed by the cracker operator rather than transferring it downstream.
Unprecedented upstream volatility in the second quarter which saw cracker margins in negative territory for the first time since 2002, had led to renewed calls for the industry to move away from quarterly to a more responsive contract system.
Initially there appeared to be more support - at least in principle - from industry players than seen during the earlier attempts.
However, few were willing to officially make their position clear, unlike buyers in the INEOS Group who formally announced in July that they wanted a change in the system.
Detractors of a monthly process had said previously that 12 settlements through the year would increase volatility through the chain, increase the possibility of retroactive contracts as has been seen in the ?xml:namespace>
Some sources were also unwilling to undertake the discussion process 12 times a year, quarterly negotiations were already rather lengthy, and they were not convinced that the process of deciding a reference would be made any easier because of the shorter time period.
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