15 January 2009 11:05 [Source: ICIS news]
By Nel Weddle
LONDON (ICIS news)--Ethylene (C2) and propylene (C3) contracts are unlikely to settle on a quarterly basis due to a lack of participants as the vast majority of European volume has been agreed on a monthly basis for the duration of the first quarter, market sources said on Thursday.
“It's safe to say that there will be no quarterly price in Q1,” a key ethylene consumer said.
Another key ethylene consumer said that a quarterly price was “impossible now” and that it had confirmed its switch to monthly for the first quarter. Its own suppliers had refused to offer a quarterly price unless it included a high risk premium to cover any uncertainties over market conditions in February and March.
“A quarterly price is not so workable,” a producer agreed.
“Ninety percent of our volume is already on the monthly at least for Q1, and we will see what happens for Q2,” another major producer said.
Just two contract parties were left to confirm whether or not they would accept monthly pricing for the first quarter. Definitive news was expected by the end of the week.
Following the initial January settlements mid-December, remaining contract parties had struggled to find a settlement.
Several contract players acknowledged that while they were still very supportive of maintaining the quarterly contract mechanism, the current economic climate and ongoing concerns regarding upstream volatility versus lacklustre downstream performance, had led to them agreeing to follow the monthly settlements from a purely pragmatic standpoint.
Many stressed that they hoped and would expect the industry to return to a quarterly pricing basis for the second quarter.
“Everyone has agreed to work on a monthly basis for Q1 only,” a producer said but added that it was not “defending the monthly [contract system]”.
“We don’t want to kill it [the quarterly system] too quickly,” a consumer said.
“A lot of people are hoping the market will go back to quarterly, we will have to see how it [the monthly system] will be maintained,” said a key propylene seller.
Sources said that derivative players who had up till now enjoyed the stability of quarterly ethylene and propylene pricing, would still need to be convinced that a monthly system was beneficial to them.
A consumer said that a couple of suppliers would follow a quarterly price if one were agreed, but that they would not be active in settling the number themselves.
“We will not be participating in any of the monthly discussions either” said the key propylene seller.
There were some comments that there might be some private and confidential agreements between buyers and sellers covering the quarter, but most were applying the monthly price because there “was nothing else”.
January ethylene was agreed at €520/tonne ($703/tonne), down €600/tonne from the fourth quarter. Propylene was settled for January at €430/tonne, down €523/tonne.
Given recent feedstock naphtha increases and improved demand – albeit slightly – compared with December, February contracts were widely expected to see increases. Discussions were expected to get under way next week.
The contracts are settled on a free delivered (FD) northwest Europe (NWE) basis.
($1 = €0.76)
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