US ethylene may drop 1.3% as July-Aug settlement gets underway

02 September 2010 21:31  [Source: ICIS news]

Ethylene likely to settleHOUSTON (ICIS)--US ethylene contracts for July-August began to settle this week and sources on Thursday said a two-month deal was likely to put August at 39.00 cents/lb ($860/tonne, €671/tonne), down by 1.3% from 39.50 cents/lb in June.

US ethylene contracts remained unsettled in July as buyers and sellers were unable to reach an agreement for that month, triggering an automatic double-month settlement with August.

According to sources, an initial agreement this week had the monomer dropping by 2.50 cents/lb to 37.00 cents/lb in July, but rising by 2.00 cents/lb to 39.00 cents/lb in August.

Market participants said one settlement had been reached at those levels, but confirmation from the parties involved was not immediately available.

The monthly contract was widely expected to fall in July due to lower spot prices and a drop in production costs that month.

Ethylene spot prices in July averaged around 33.00 cents/lb, down from 35.00 cents/lb in June, while production costs fell by 3 cents/lb on lower feedstock ethane prices.

However, the market made an about-face in August on the back of cracker outages, higher production costs and stronger demand for the monomer.

Ethylene spot prices in August averaged just over 36.00 cents/lb, rising by 9% from July, spurred on by disruptions in at least three major crackers in Texas last month.

The outages were exacerbated by an estimated 1.50 cent/lb jump in production costs amid upward pressure from ethane, which accounts for around 60% of US ethylene feedstocks.

Mont Belvieu ethane swap futures on the NYMEX in August averaged 48.00 cents/gal, up from 45.00 cents/gal in July, but down from 52.00 cents/gal in June.

The volatility in the feedstock was due to supply/demand swings in the last three months, one market participant said.

Ethane traded down to 46.00-46.50 cents/gal on Thursday.

The initial ethylene settlement for July-August puts contracts just above the latest spot deals for the monomer.

US ethylene for September traded at 38.00-38.25 cents/lb on Wednesday, down from deals done at 39.00-41.25 cents/lb last week.

September ethylene was offered at 38.25 cents/lb on Thursday with no bids.

Major US ethylene producers include Chevron Phillips Chemical, ExxonMobil, INEOS, LyondellBasell and Shell Chemicals.

Buyers include Dow Chemical, Georgia Gulf, Occidental Chemical (OxyChem) and Total.

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By: William Lemos
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