Europe MEG producers refuse to follow initial October contract

15 October 2010 17:05  [Source: ICIS news]

LONDON (ICIS)--European monoethylene glycol (MEG) producers are unwilling to follow an initial contract, confirmed last week at €806/tonne ($1,136/tonne), they said on Friday.

“Our stance is that we’re not going to settle at this level,” a producer said.

The initial settlement was agreed on a free delivered (FD) northwest Europe (NWE) basis.

Producers said that they could not follow the number as it was too low given spiking spot values in Europe and Asia. They added that the correct contract range should be €830-850/tonne FD NWE, taking into account the rising spot prices.

“Sellers aren’t happy. The contract is too low. European [spot] prices are high. Asia spot prices are high too. The contract should be around €830/tonne,” another producer said.

European MEG spot bids and offers were heard at €760-830/tonne CIF (cost, insurance and freight)  NWE T2, up €20-60/tonne from last week. Prices at the top end of the range were increasing due to tight supply and strong demand.

Tight supply was caused by a lack of import volumes and low supplier inventory levels. Supplier inventories had been lowered because of lower demand in September,  and the return of strong anti-freeze buying interest had taken them by surprise, producers said.

Nevertheless, the weak US dollar and rising European spot prices was opening the arbitrage window with the US and Asia, and some sources said that they were expecting volumes from these regions to enter Europe in the second half of November, which would ease supply constraints.

Anti-freeze consumption had been low because buyers were expecting MEG price decreases in October, which had not materialised. Anti-freeze buyers could no longer delay purchases and were now forced to buy due to peak-season activity, sources confirmed.

There was talk of the possibility of bridging contracts for October and November, with higher values in November in order to counteract the disparity between spot and contract prices, producers said.

“There are two options. Either it will not be accepted and two parties will agree higher prices, which has never happened before. Or, there will be a double settlement for October and November, with November at a higher number as a compromise – this is more likely,” a trader said.

($1 = €0.71)

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By: Mark Victory
+44 208 652 3214

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