Europe February C2, C3 become fully confirmed with increases

27 January 2010 17:09  [Source: ICIS news]

LONDON (ICIS news)--European ethylene (C2) and propylene (C3) contract settlements for February have been fully established at the higher end of the discussion range, with the outcome creating disappointment for some market players, sources said on Wednesday.

“Time will tell whether the markets are ready for it,” said one large polypropylene producer, following the C2 settlement at €940/tonne FD (free delivered) NWE (northwest Europe) and C3 at €875/tonne FD NWE.

The C2 contract increased by €70/tonne ($99/tonne) from January, while C3 was up by €85/tonne from the previous month.

“I am a little bit disappointed. You can argue that [propylene] is in the range. But ACN (acrylonitrile) can afford higher prices, we can’t,” the producer added, referring to an ACN producer, which was the first contract buyer to settle propylene.

“It’s [the settlement] at the end of the range where we start to get concerned,” the producer continued. “But we needed clarity and a timely settlement for our customers.”

Sources agreed that it was clear from the outset that there would be increases in the contracts, and that producers would want to improve cracker margins.

Naphtha values had strengthened since the January settlements, and demand for both olefins had been better than expected as a result of unplanned cracker outages and good export potential due to a strong Asian market.

Demand levels for February were also expected to remain healthy, while the general perception regarding upstream markets was that they were likely to be maintained on a firm level, if not trend higher.

“According to the nominations we have, we have to run our machines very hard,” said a major merchant producer, adding: “We don’t expect any correction due to the [contract] prices.”

A non-integrated ethylene and propylene consumer said: “It was more than expected. It’s normal that propylene settled at a higher increase than ethylene, but it’s still higher than expected.”

The consumer added: “We were thinking plus €50-60/tonne for ethylene and plus €65-70/tonne on propylene.”

Another producer said: “I understand that for some derivatives, [the increases] are stiff. But Asia is strong and [propylene] supply is limited.”

Sources said that the gap between buyers and sellers had in fact been quite narrow.

“My understanding is that there was a €5/tonne debate [on ethylene and propylene], rather than a bigger one,” a key integrated player said.

The polypropylene producer said: “We would have been ready to settle [propylene] at plus €80/tonne. It’s still a lot of money for us.”

A large integrated ethylene consumer said: “As with all contract prices, it’s a compromise. We needed to give derivatives a clear picture.”

($1 = €0.71)

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By: Nel Weddle
+44 20 8652 3214

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