FocusEurope ethylene at turning point as supply begins to lengthen

12 March 2010 13:46  [Source: ICIS news]

ShellBy Nel Weddle

LONDON (ICIS news)--European ethylene (C2) is again at a turning point where producers will have to monitor cracker operations very closely to ensure that supply does not outweigh demand, market sources said on Friday.

“I do get the impression that ethylene is a little bit lengthening, especially for April, and I think everyone has a similar view,” an integrated producer said.

“Ethylene is becoming challenging again,” it added.

The view that the market had peaked had been heard since mid-February, by which time the unplanned cracker problems over the Christmas and New Year period were resolved.

However, unexpected problems at Shell’s Moerdijk, Netherlands, cracker – at 900,000 tonnes/year of ethylene capacity, the second-largest in Europe - and at its Wesseling 2A cracker in Germany, alongside refinery strike-related effects on two of Total’s French crackers, had meant that in the short term, fears over a lengthening market abated.

These latest production problems had now come to an end. Crackers were running well, sources said, and in some cases at close to full rates due to good margins and strong demand and tight supply for cracker by-products propylene (C3) and butadiene (BD).

“We see normal operations, good cracker margins; the market is well supplied,” a net consumer said.

A producer agreed: “If crackers run higher, availability of C2 is bigger [and] demand, while improved compared to a couple of months ago, is not yet there to absorb European capacity.”

Nobody was yet being forced to remove volume from their systems, sources said, but producers would need to keep a close eye on developments. It was still early in the month, and, as such, producers were waiting for April nominations from their customers.

“It could be that everyone is on the market at the same time - this would really be the start of the downward spiral,” the integrated producer said.

Spot activity was minimal, sources said, with no openly reported deals seen for a couple of weeks.

High prices in the US because of production problems opened up the east-west transatlantic arbitrage window and had led traders to explore the possibilities of exporting European ethylene to the region.

It would make sense, traders said, since it could help to balance the European system.

However, many sources were sceptical that this was a workable option. Sources said that the window of opportunity was very narrow. Volume would have to be available very promptly since the US market was backwardated and there were logistical issues to overcome. US imports are rare since there is only one privately owned terminal and little storage capability.

US ethylene was traded at 70cts/lb ($1,543/tonne, €1,126/tonne) delivered in the week ending 5 March, but offer levels had since slumped to 65cts/lb delivered. April was being offered at 62cts/lb, according to global chemical market intelligence service ICIS pricing.

Freight rates for northwest Europe (NWE) to the US Gulf were pegged at around $200-220/tonne. Given current indications in the low 60cts/lb delivered for April, the European netback was very low.

“It [the netback] should be around $850/tonne [€620/tonne] FOB (free on board) NWE (northwest Europe) to make it work,” a trader said.

Current European prices were being assessed in the low €800s/tonne FD (free delivered) on the pipeline, according to ICIS pricing. However, firm naphtha values were putting pressure on producers to increase spot levels for incremental tonnes and seller price ideas were reported around €860/tonne FD. The March contract price was settled at €940/tonne FD NWE, a rollover from February.

“If there was a window, it’s now gone,” said the integrated producer.

($1 = €0.73)

For more on ethylene visit ICIS chemical intelligence
Click here to find out more on the European margin reports
To discuss issues facing the chemical industry go to ICIS connect

By: Nel Weddle
+44 20 8652 3214

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