16 July 2010 12:36 [Source: ICIS news]
By Nel Weddle
LONDON (ICIS news)--As discussions over a possible switch from quarterly to monthly contract pricing continue between European butadiene (BD) producers and consumers, a framework or “rules” for the process is beginning to take shape, market sources said on Friday.
Producer sources said the definition of the monthly contract price (MCP) was that it would be a gross price agreed on a free delivered (FD) northwest Europe (NWE) basis, negotiated between suppliers and customers and published as the industry reference contract price by ICIS.
The net price would be the result of private and confidential discussions between the counter parties and specific to the individual contracts.
The possibility of agreeing a number on a FD EU (European Union) basis was mooted, but there had to be recognition that a higher freight element to central Europe for example would have to be taken into account.
The participating parties would be major independent producers and consumers in Europe and a settlement would only be formerly recognised, as per the quarterly price, when two different producers and two different consumers had confirmed.
There would have to be a strict time frame, with negotiations to start between the 20th and 25th of each month. One producer said it would aim for the next month’s agreement on the 25th of the current month, while one or two others said that there should be an agreement on the last day of the running month at the latest.
One source believed that there should only be communication of the settlement once it has been fully agreed by minimal requirement of two producers and consumers.
This stemmed from the belief that sometimes the news of an initial settlement had undermined other contract players’ attempts to have full discussions with their counter parties and potentially settle another number.
“Once a price is ‘out’ its difficult to change it,” a major producer said.
However, other sources said that the discussion process had to be fair and transparent and reflective of a free market. Another producer said that a report of an initial agreement should only be valid when the reporting party had two agreed counter parties to that price, and that the report should be extremely clear that it is purely a first agreement.
A monthly contract price has been openly reported by a major European producer and one or two of its consumers since January 2006. However, the majority of the market had persisted with the quarterly contract system and various attempts over the past couple of years to persuade the whole market to adopt the monthly process had failed on strong resistance from certain consumers.
However, producers made renewed calls for a monthly process to be adopted as third quarter contract discussions got under way this year. Market sources said the push towards a fully recognised MCP had gathered momentum due in part to the emergence of Styron – Dow’s former styrenics business – as a stand-alone MCP consumer, the third largest in Europe.
The third quarter contract recently settled at €1,480/tonne ($1,897/tonne) FD NWE, up by €205/tonne from the second quarter. The July monthly contract price was agreed at a rollover €1,400/tonne FD NWE.
($1 = €0.78)
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