26 November 2010 14:41 [Source: ICIS news]
LONDON (ICIS)--The European ethylene (C2) contract reference price for December has been fully confirmed up by €27/tonne ($30/tonne) at €1,005/tonne FD (free delivered) NWE (northwest Europe), reflecting firmer feedstock values and a stable to strong supply/demand balance, market sources said on Friday.
The first settlement, concluded early this morning, was between a major merchant seller and two of its consumers, one non-integrated and the other a key net consumer. A second major producer then followed suit.
While confirmation from other contract players was still outstanding, the reference is traditionally accepted as established when two producers and two consumers have agreed.
Initial reaction to the settlements was mixed.
An increase had been widely expected because cracker margins were being squeezed by strengthening US dollar-based naphtha prices and this was being exacerbated by a weak euro.
At the start of the contract negotiation process, a couple of producers said that increments would have to be more significant than those seen recently in order to build in a buffer against the underlying upwards trend in crude oil and feedstock values.
With this in mind and following an especially volatile naphtha market this week, the €27/tonne increase was not enough for some producers.
“It's lower than expected,” said one producer.
At least one other producer had been targeting as much as plus €40/tonne even prior to the spike in naphtha values.
Prices of naphtha in Europe increased from $747–755/tonne CIF (cost, insurance & freight) NWE on Monday to $785–795/tonne on Thursday afternoon.
However, other producers said the settlement had come within their range of expectations.
“My model for cost suggested we needed €30/tonne to cover the change in naphtha, so [it's] reasonable,” one producer said.
Others said they had been working towards a settlement within a plus €25–30/tonne range.
Buyers generally accepted the reasoning behind the increase targets.
“Crude is on the move again and there is no protection from forex,” a major buyer said.
However, market observers cautioned against setting numbers too high given the approaching year end, adding that higher numbers would only prove to be a magnet for more competitively priced import volumes.
Ethylene spot prices were being pegged below $1,100/tonne at the coast and around €900/tonne on the ARG (Aethylen Rohrleitungs Gesellschaft) pipeline.
The supply/demand outlook was balanced to long, sources said. Any seasonal downturn was not expected to be as pronounced as in previous years, since inventory levels across the chain had been maintained at low levels all year and there was still some catching up to be done following the strike-induced production outages in France in October.
At the time of publication, only an initial propylene settlement had been agreed for December. The agreement between a major producer and a major net consumer was at €960/tonne, up by €22/tonne from November.
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