28 November 2008 13:51 [Source: ICIS news]
By Nel Weddle
LONDON (ICIS news)--Historic price decreases of as much as €500-600/tonne ($649-779/tonne) for ethylene and €300-400/tonne for propylene are widely expected for the first-quarter 2009 Europe olefins contracts, market sources said on Friday.
The massive correction was on the cards, sources said, as crude and feedstock naphtha values had sunk considerably since the fourth-quarter settlements, with the latter having decreased around 60% since the end of September.
The unprecedented slowdown in demand throughout the whole quarter had also led to an all-time low in cracker operating rates.
“We will definitely see a very low number, otherwise we won’t survive,” said one key propylene consumer.
Added another olefins consumer: “It’s very early to predict a price, but [we] expect a sharp reduction.”
Ethylene and propylene suppliers in general echoed this sentiment, although a few cautioned over going too low.
“We have to be careful not to overcorrect,” said one producer.
The producer said it should be remembered that both the crude and naphtha markets were in contango, and that the February-March demand outlook “should be better than the current December-January outlook”.
Added another producer: “We don’t want to go too far down just because of consumption [levels]. It’s a crazy world and naphtha could shoot up again.”
There was talk that the tables had turned for producers in these contract discussions, as they were focusing on locking in volume with their customers and therefore being much more compromising in terms of price.
A rapid decline in derivative demand, due in part to the traditional year-end destocking, soon saw spot activity dwindle amid burgeoning supplies.
In addition, derivatives producers were unable to compete on the export market because of high product costs.
Making matters worse were the price reductions in global markets, which saw cheaper material coming in to the region.
Cracker operating rates were at an all-time low, but sources said their systems were still unmanageable and there was absolutely no room for manoeuvre.
Aside from those still offline due to planned maintenance, a couple of cracker operators had temporary stops under way solely because of market conditions.
($1 = €0.77)
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