04 November 2008 15:58 [Source: ICIS news]
LONDON (ICIS news)--The persistent weakening of naphtha feedstock values has meant that European contract cracker margins have now surpassed fourth-quarter contract values for ethylene (C2) and propylene (C3), according to an ICIS news analysis of margin data.
In the week ending 31 October, the contract margin was assessed at €1,216/tonne ($1,539/tonne) FD (free delivered) NWE (northwest ?xml:namespace>
This was a week-on-week gain of 9%, compared with the fourth-quarter contract settlement assessed at €1,120/tonne FD NWE.
Naphtha values, which in July had peaked alongside crude oil at $1,150/tonne CIF (cost, insurance and freight) NWE, were now being assessed in the mid-$300s/tonne CIF NWE by global chemical market intelligence service ICIS pricing – levels not seen since April 2004.
While contract margins based on naphtha feedstock were obviously extremely good, it was questionable whether European cracker operators were seeing the full benefit, as operating levels had been cut back for some time due to very weak derivative demand.
Few cracker operators were willing to confirm current operating rates, but market sources had been speculating on cutbacks of 20% or more, with at least one producer saying that it was operating at technical minimum.
Several market observers said that they expected there to be more news regarding full cracker shutdowns by the end of the year.
Ethylene was the worst-performing olefin, with demand into its main derivative polyethylene (PE) having weakened considerably since early September.
Consequently, containment issues arising from surplus ethylene had left operators with no choice but to cut rates.
Propylene had been holding up as a result of the cutbacks and other planned maintenances, but its derivative demand had also weakened, with a lengthier supply situation now being discussed.
Sharply lower prices in Asia had also raised the spectre of additional import volumes from the Middle East and Asia, which had weakened sentiment despite few outlets being available in
The high margins had seen calls for a renegotiation of fourth-quarter contract prices over the past couple of weeks, but this was deemed unlikely by the majority of industry players.
Instead, there was talk of special deals, cheaper sales outside of the quarterly framework and a review of contract discounts on a case-by-case basis.
Liquid petroleum gas (LPG) contract margins were flat, but lagged naphtha margins by over €290/tonne.
($1 = €0.79)
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