Europe C2, C3 July contract discussions progress slowly

24 June 2010 16:49  [Source: ICIS news]

LONDON (ICIS news)--July contract negotiations for European ethylene (C2) and propylene (C3) are underway but progressing slowly, market sources said on Thursday.

Some contract participants said they had only started discussions on Tuesday or Wednesday of this week and had not yet entered the second round.

There was some mention that the lack of a settlement was because of difficulties in reconciling upstream concerns regarding feedstock costs with downstream worries about competition from Asian and US derivative markets, particularly since both the buying and selling sides agreed that demand was fairly strong.

“We haven’t made much progress - there is a bit of a gap,” one major consumer said.

Producers were generally offering rollovers for both ethylene and propylene, sources said, based on stable to firm average naphtha figures and healthy demand.

One producer said its initial position was to vie for an increase as profits were being eroded.

“Feedstock has increased €50/tonne since the time of the last fixture,” it said.

June contracts settled on 25 May when naphtha was being assessed at around $612/tonne (€496/tonne) CIF (cost insurance freight) NWE (northwest Europe), but naphtha values were now closer to $650-660/tonne, equivalent to €527-535/tonne.

However, those taking a monthly average into account said there was little difference between the May average and the June average to date, while some sellers said their main concern was volatility and a potential upswing in naphtha prices.

Consumers were vying for a decrease largely because of concerns that high costs could price European derivatives out of the global market. Some market observers pegged the decreases at around €30-50/tonne for propylene and €20-30/tonne for ethylene.

“If we keep such prices, we open a window. We cannot ignore what is happening in the rest of the world,” another major consumer said.

“Naphtha may be picking up, but cracker margins are now more aligned with the rest of the petrochemical chain,” it added.

Cracker margins for June, although down from May, were still the healthiest seen since the fourth quarter of 2008, according to ICIS data.

June ethylene settled up by €10/tonne at €970/tonne FD (free delivered) NWE, while propylene rolled over at €1,000/tonne.

($1 =€0.81)

For more on ethylene, propylene 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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