Europe C2/C3 derivatives move toward monthly pricing

21 January 2009 17:13  [Source: ICIS news]

By Nel Weddle

LONDON (ICIS news)--Some major European ethylene (C2) and propylene (C3) derivatives are switching to monthly pricing in light of this being adopted for upstream contracts, industry sources said on Wednesday.

“The monthly price is the best thing that has happened,” a key ethylene oxide (EO) producer said. “EO will have to follow the monthy change of C2 prices,… it is necessary to make the market and downstream consumers competitive to other regions.”

However, there was some consensus in certain markets that while they could see the logic in moving to a monthly contract price (CP) it would involve too much work.

One methyl methacrylate (MMA) consumer said that it would mean no time for strategic and important business activities since they would be travelling all the time for negotiations.

Nevertheless, the first ever acetone MMA monthly contract price for January was later agreed, as parties did “not know what was going on with propylene” and that acetone spot pricing was “all over the place because of the huge drop in the value of propylene”.

On the oxo-alcohols market, one producer said the switch was not a major hassle, and was just an extra discussion with its contract customers, most of whom were happy to factor in monthly propylene price changes. The only inconvenience would be if the monomer contract kept switching back and forth from quarterly to monthly.

In the European acrylonitrile (ACN) market, there was growing acceptance that ACN contracts would temporarily move towards monthly pricing for January, based on the the lack of agreement in first quarter propylene prices and market volatility. However, one producer was reported to have ruled itself out of supplying contract tonnage, preferring to do so on a spot basis.

Players on the butanediol (BDO) market were also considering settling prices on a monthly basis in order to better combat market volatility.

Opinions on the vinyl actetate monomer (VAM) market were mixed. Pricing was usually on a quarterly basis and not agreed until the last month of the quarter.

Because of this, one VAM producer said: “ It is far too early to say if VAM will follow in the monthly steps of ethylene, we will probably not know until the end of Q1.”

One VAM consumer said: “We will conclude on a quarterly basis as usual. I simply do not have the time to renegotiate all my business on a monthly basis.”

But another VAM consumer said: “We expect to follow the pattern of ethylene and settle on a monthly basis.”

Some sources in other markets appeared to be reaching a consensus on where in theory they expected a quarterly ethylene and propylene price would lie and were using this as a basis for their own price discussions.

There were some derivative customers that had pegged €550/tonne as a reasonable figure for first-quarter ethylene and were happy to assume this figure for the whole of the quarter.

Meanwhile, there was evidence that some quarterly contracts had simply been re-worked. An ethanolamines buyer said it had agreed its prices on a quarterly basis, but with a new clause allowing for adjustment if ethylene prices fell further in February and March.

The debate over quarterly versus monthly contract mechanism in the European olefins market has been raging for some time, but it was only after recent unprecedented volatility upstream and demand destruction downstream that the monthly system had been adopted, for some on a temporary basis.

One of the main arguments against this system was that stability for downstream markets was key and that someone had to absorb crude and naphtha feedstock volatility.

But the apparent ease with which some key derivatives  - outside of the polyolefins which were already priced on a monthly basis – have begun monthly pricing suggests otherwise.

January ethylene was agreed at €520/tonne ($703/tonne), down €600/tonne from the fourth quarter, while propylene was settled at €430/tonne, down €523/tonne.

Given recent feedstock naphtha increases and slightly improved demand compared with December, February contracts were widely expected to see increases. Discussions were getting under way this week.

The contracts are settled on a free delivered (FD) northwest Europe (NWE) basis.

($1 = €0.78)

Caroline Howard, Truong Mellor, Julia Meehan and Jane Massingham contributed to this article
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By: Nel Weddle
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