09 December 2008 16:11 [Source: ICIS news]
By Nel Weddle
A key contract seller said that it would primarily only offer contracts for January due to the current situation.
“We will offer the best price for January, if we offer quarterly it will include a high risk premium,” it said, expressing concern over demand in the second half of the first quarter.
No specific figures were divulged, but the differential between the January price and the first quarter offer was looking likely to be in the three-digit region.
“The idea seems to be fair, but I think it is the wrong period (to implement such a change) because of the exceptional pressures,” a major consumer said. However, it added that while it would like to remain on a quarterly basis it could see that the market could change.
Uncertainty about demand levels following a disastrous fourth quarter as well as anxieties regarding upstream volatility, made some players more convinced than ever before that the current quarterly system was outdated and unable to cope with the global reach of the derivatives business.
The quarterly versus monthly contract system has long been an issue for the European olefins industry, particularly in the second and third quarters of this year.
However, the system’s proponents were dealt a serious blow as a major integrated player and another key producer indicated that they would not be supporting any industry move to a monthly system.
Another key producer said it was discussing the latest developments internally and would clarify its position shortly. It had earlier advocated quarterly pricing as its customers needed the stability provided by a three-month price.
This led to calls by several olefins consumers for a renegotiation of contract prices, while others explored various options, including settling a first quarter price which would also be valid for December 2008.
Cracker output was currently at an all time low, while ironically the contract cracker margins had surpassed contract values and were at a peak.
Because of this some consumers were sure that producers would be more eager to lock-in sales volumes for the whole quarter rather than for just a month and would therefore also be much more competitive and flexible in terms of pricing.
It was not clear how this news would be received by other olefins contracts participants. Discussions were expected to take place on the sidelines of an industry function to be held in
Fourth quarter ethylene and propylene settled at €1,120/tonne ($1,454/tonne) and €953/tonne respectively. Early contract discussion was pegging historic decreases of €500-600/tonne for ethylene and €300-400/tonne on propylene.
($1 = €0.77)
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