Europe olefins supply nears critical point amid strikes in France

21 October 2010 18:05  [Source: ICIS news]

LONDON (ICIS)--Olefins players in Europe are concerned that ethylene (C2) and propylene (C3) supplies are approaching a critical point as the continuing strikes in France could disrupt the restart schedules of crackers currently shut for maintenance, market sources said on Thursday.

“Up until today, [the] strikes had a minor effect. But I do believe we are at a turning point,” said a major producer. “If strikes go on for a few more days, it will start to modify balances [outside France].”

The producer added: “From now on, every further day will impact on supply and demand.”

Industrial action in France over pension reforms, along with an unrelated strike at Marseille’s Fos-Lavera oil port, has caused massive disruptions across the country.

France’s refineries have been worst hit, with all of them forced to either operate at minimum levels or shut production altogether.

Without the refined feedstock, associated crackers have also suffered and some producers have had to cut chemical production or declare force majeure on products as availability diminishes.

The timely restart of crackers in Germany, Belgium and France, which are currently undergoing maintenance work, is also a matter of great importance for market sources. The turnarounds are expected to be completed and restarts are to be attempted in the next few weeks.

Some sources suggested that the situation in France has already begun to encroach on ethylene markets elsewhere in Europe, particularly in Germany, Belgium, the Netherlands and Luxembourg.

Another key producer said: “Product is short. Some people have problems and demand is running well.”

The producer added that demand for November and even December was looking robust, which it said was largely due to the fact that consumers had been very cautious in their outlook and had essentially planned for a weaker situation.

A third producer said: “It's [the strikes] definitely going to be affecting the balances. It's impacted on 8% of European ethylene capacity  around 5% was already out because of the turnarounds.”

The Fos-Lavera port strike has already affected balances in the Mediterranean, with some derivatives operations in Tarragona, Spain, notably polyethylene (PE), reduced because of the lack of timely ethylene supplies.

Ethylene spot numbers firmed over the past week, with deals reported on the pipeline at €945/tonne ($1,313/tonne) FD (free delivered) NWE (northwest Europe), and coastal business at €920-930/tonne CIF (cost insurance freight) NWE for European-origin volume.

The ethylene contract price for October settled at a rollover of €950/tonne FD NWE.

Propylene supply and demand over recent weeks had been balanced to long, depending on source and despite the planned cracker maintenance projects. The strikes in France have helped to absorb some of the length in the market.

There was uncertainty how the strike at the Fos-Lavera oil terminal would affect operations at the Miro Karlsruhe refinery in Germany. There were unconfirmed reports that operations were now having to be reduced. However, customers of propylene supplied by Miro were so far not aware of any change to their volumes.

The general view was that the gap between spot and contract prices would narrow, but some sources said that there was still competitively priced deep-sea availability.

October propylene settled at €920/tonne FD NWE, down by €10/tonne from September.

The last spot deal reported was for 3,000 tonnes of polymer grade at €830/tonne CIF (cost insurance freight) NWE.

Sources said that while the strike action was ongoing, the situation in France itself could be regarded as balanced, with production and consumption both down and/or reduced.

The effect of the strikes was two-fold, according to at least one market source.

Derivatives and finished goods sold out of France's markets were tighter because of a lack of supply, although derivative producers elsewhere in Europe were said to be benefiting from the shorts arising from the diminished French production.

Meanwhile, feedstock supplies into France such as crude, naphtha and liquefied petroleum gas (LPGs) would be under pressure because of burgeoning stock levels.

“Once the strikes are over, things will get more interesting and less predictable,” said a major consumer.

“It will all depend on supply chain speed…who will be up first,” the consumer added.

It was the time lag between getting all upstream and downstream units running normally that was leading to some bullish, or at least more optimistic, expectations among industry selling sources at a time when there usually starts to be concerns regarding a slowdown at the end of the year.

“We should notice [the impact of the strikes] in the market a little bit later. I think that in November the market could get tighter,” a propylene producer said

Market sources were mindful that the next round of contract negotiations was rapidly approaching.

“Next week, it's important for [contract] settlements, discussions will soon start,” the first major producer said.

The producer added: “It will not be an easy game,” referring to the added complexity of the negotiations given the uncertainties over the strike action and its impact both upstream and downstream.

($1 = €0.72)

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By: Nel Weddle
+44 20 8652 3214

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