Europe cracker issues push C2 spot higher, helps to rebalance C3

06 August 2010 13:20  [Source: ICIS news]

LONDON (ICIS)--A raft of unplanned cracker problems recently has tightened the European ethylene (C2) market, leading to firmer spot prices and helping to counteract some of the unexpected length that was being seen in the propylene (C3) market, sources said on Friday.

Production issues over the past couple of weeks at a number of crackers, as well as some impact from high summer temperatures, has prevented the necessary preparations for scheduled maintenance work to be carried out, sources said.

Both ethylene and propylene demand had remained healthy, with little to no seasonal dip seen. Ethylene supply was tight and demand for incremental tonnes had increased.

Most sellers said that they were unable to accommodate the many requests for volume in terms of physical sales, while others said that imbalances in players’ systems were for the most part being managed through time-swaps where possible.

Deep-sea ethylene, which had been weighing on the coastal sector since June, was now less of an option, some traders said, since availability had been reduced and tight shipping space had increased freight rates.

Asian prices were creeping upwards and some sources were of the opinion that it might not be very long before Middle East sellers had an alternative outlet to Europe.

Spot prompt ethylene prices were assessed around the August contract value – €940/tonne ($1,237/tonne) FD (free delivered) NWE (northwest Europe) and above, according to sources.

Deep-sea tonnes were pegged at around $1,000/tonne CIF (cost, insurance freight) NWE. Import prices had reached the low $900s/tonne.

Propylene had been lengthening more than expected in June and July, primarily because of unplanned derivative production issues, notably on polypropylene (PP).

In addition, usually for the summer period, cracker operators had been favouring naphtha as a feedstock because of high liquefied petroleum gas (LPG) prices. Naphtha feedstock produces a greater proportion of propylene and C4s than LPG.

However, the recent and ongoing cracker issues had helped to absorb some of the surplus created by the PP outages, with the result that market players were now describing a more balanced outlook and, in some cases, slightly firmer spot pricing.

“It’s more or less balanced,” said a key propylene producer. “[Spot] prices have picked off the bottom.”

Spot polymer-grade prices at the coast sunk to the low-to-mid-€800s/tonne CIF NWE amid comments from the trade that certain European producers would soon be entertaining thoughts of exporting in order to relieve the pressure on inventories.

However, export prices pegged in the very low €700s/tonne FOB (free on board) were deemed unworkable and unnecessary since no supplier was that desperate to remove tonnes.

“I wouldn’t be surprised if September would be on the short side,” said a trader, alluding to the fact that derivative problems – particularly the PP issue at Lavera, France – should be resolved by then.

“Derivative issues are not as bad anymore,” said the trader, who added: “I think the gap [between] spot and contract price will narrow significantly going forward.”

Sources said that polymer-grade propylene prices at the coast were at, or close to, €900/tonne CIF NWE.

“I don’t think anyone would now sell below €900/tonne,” said the producer.

Recent cracker problems included the unplanned outage at Repsol’s cracker at Sines, Portugal, and unconfirmed issues at two crackers in the UK ahead of their planned maintenance projects this month.

Upcoming scheduled maintenance work was due to get under way at crackers in Germany, France and Belgium in the September-October period.

The ethylene and propylene contracts for August both settled at €940/tonne FD NWE, down by €18/tonne and €38/tonne from July, respectively.

($1 = €0.76)

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By: Nel Weddle
+44 20 8652 3214

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