13 October 2010 15:17 [Source: ICIS news]
LONDON (ICIS)--The European butadiene (BD) industry is now ready to suspend the quarterly pricing mechanism in favour of a monthly contract price (MCP), an executive at SABIC said on Wednesday.
“The industry is ready to make that move,” said Maurice Kramer, the company's European marketing and sales manager for aromatics and C4s.
“[I] believe that there is full alignment [between producers and consumers],” added Kramer.
Although a monthly contract price had been openly reported as early as 2006, it had failed to find support from the vast majority of BD players.
There had been particularly strong resistance from the major consumers.
They wanted to stick with the quarterly contract system, citing the need to maintain downstream stability and arguing that a monthly process was of no benefit to consumers. Also, it would be a time consuming process, the consumers said.
However, momentum for change began to build earlier this year with the emergence of Styron, Dow’s styrenics spin-off and now a large stand-alone consumer of BD. They took a firm stand from the beginning regarding the monthly process.
Another European C4s producer credited the ICIS C4s discussion panel at the 5th World Olefins conference in March with the breakthrough that was needed. During the discussion, large European BD consumer Michelin stated that it was now “open to discuss the monthly price”
“Our customers are with us,” the producer said, adding: "Some [customers] won’t lead, but they won't object.”
To date, four major BD producers and two major BD consumers had indicated that they would be proactive and in the driving seat for the monthly discussions.
Another two consumers and one other producer said that they would not lead the process, but would follow simply to prevent a dual [quarterly and monthly] contract pricing mechanism.
The producer said: "We will follow the market, [but] our main target is to establish a price formula so therefore [we] are for neither the QCP (quarterly contract price) or the MCP.”
“[The MCP occurring] is a great likelihood,” one major consumer said, adding :“[If] the industry is moving, we will move too...there should be no dual contract system.”
Another large consumer said that, although it would follow the rest of the industry to monthly, “we still don’t like it [MCP], as our agreements with our customers are on a quarterly basis. This gives us the risk.”
Over the past few months, discussions between counter-contract parties had been taking place in order to iron out a few rules and to establish a framework.
The latter issue was proving to be the last hurdle, sources said. This stemmed from the timing of consumer’s BD nominations versus the BD settlement date. So far the focus had centred on discussions and agreement within the 20-25th of each month, but some fine tuning still had to be done.
The first settlement for January 2011 could be challenging, a producer said, since December was a short month complicated by the Christmas and New Year break.
However there was confidence that these issues would be overcome.
The October monthly contract price also settled at €1,325/tonne FD, down €125/tonne from September.
Discussions for the November MCP were expected to get under way in the next week or so. Given that butadiene spot prices were under downward pressure from lengthy supplies because of a weak export market, a further decrease was being anticipated by several market observers.
All sources were clear that there should be some strict discipline with regard to the process. They did not want a dual quarterly and monthly system and they did not want the possibility of retrospectives, combined or split settlements as had been seen in the US.
($1 = €0.72)
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