08 November 2010 16:20 [Source: ICIS news]
By Nel Weddle
LONDON (ICIS)--The €28/tonne ($39/tonne) increase recently agreed for November ethylene (C2) contract prices in Europe has failed to boost cracker margins because of increasing naphtha values, according to ICIS margin analysis on Monday.
Contract naphtha margins fell by €12/tonne to just €295/tonne in the week ending 5 November as naphtha prices increased by $32/tonne. This marked a massive 45% drop in margin compared to July - the 2010 margin peak to date.
Only a weaker US dollar and a firmer propylene (C3) and benzene contract market protected the contract cracker margins from a bigger drop.
Spot naphtha margins were €150/tonne worse off. Ethylene spot prices were coming under increasing downwards pressure because of competitive Middle East availability on the back of soft Asian figures. The fact that year-end working capital considerations were uppermost in most European players’ minds hampered decision making and was also adding to the bearish pressure.
Cracker operators were tailoring output very closely to demand as a result, market sources said, since spot margins did not incentivize incremental production. Operating rates were pegged on average around 80-85% although several operators recently stated that they were running as hard as possible, probably because a handful of crackers were down for planned maintenance.
Now that crackers were re-starting and the shutdowns as a result of the strike action in France were over, there was a question mark over whether cracker rates would have to be reduced some more.
The November ethylene contract settled at €978/tonne FD (free delivered) NWE (northwest Europe). Spot pipeline prices were pegged in the mid €900s/tonne FD, but deep-sea volumes were being discussed almost €200/tonne below, either side of $1,100/tonne CIF (cost insurance freight).
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