Europe Q1 methanol contract gets more support at €235/tonne

08 January 2010 18:14  [Source: ICIS news]

LONDON (ICIS news)--The majority of European methanol players plan to follow the first-quarter contract price of €235/tonne ($336/tonne), up €12/tonne from the fourth quarter, market sources said on Friday

While the majority of buyers and sellers said they would agree to follow the price, several players on both sides said they remained unhappy about doing so.

One buyer and one seller said they would not commit to following for the time being but conceded that if the majority did so, they were left with little choice.

For the most part, however, sources on both sides said they were happy that, even though they had not reached their targets, an acceptable middle ground had been found.

“It’s a compromise, but a reasonable one,” a buyer said.

Many sources said the settlement was borne out of desire to agree a price sooner rather than later for the benefit of the European industry.

“I think [€233/tonne] is lower than the appropriate price, but I thought it was important to get a price in the market,” one of the producers said.

The most common argument for an increase was the strong performance of the global market, particularly in Asia.

“I thought it was a bit on the low side...if you look at the US and Asia, I think €240/tonne would be more reasonable,” a producer said.

Sources said they feared that if European prices were not comparable with those in other regions, then Europe would lose out on significant global supply volumes and suffer from a tight market.

None of the new global capacities in the pipeline was due to come on line until the second quarter at the earliest, sources pointed out.

Sellers also highlighted positive macroeconomic data, which suggested healthy demand growth, and the lesson of 2009: the strength of the European market was significantly underestimated and prices skyrocketed.

Many buyers said they considered the arguments of the sellers to be exaggerated and simply felt a rollover was the most justified price.

Some also felt that the argument only applied to January, not the quarter as a whole.

“I think the macro economy will cool down, spot prices will come down through the quarter,” a buyer said.

Several buyers expressed concerns that if the contract price was too high, then spot values would crash.

Spot prices would resemble a “rollercoaster” if the market became out of sync with the contract price, according to a source.

($1 = €0.70)

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By: Ross Yeo
+44 208 652 3214

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