30 November 2010 13:26 [Source: ICIS news]
LONDON (ICIS)--The European December propylene (C3) settlement has been fully confirmed up by €22/tonne after a second contract was agreed, a key producer said on Tuesday.
The producer said it had followed the initial settlement agreed on 26 November at €960/tonne ($1,263/tonne) FD (free delivered) NWE (northwest Europe) with a major non-integrated consumer, though confirmation from the consumer was still pending.
A third non-integrated consumer was also reported to have followed, but this could not immediately be confirmed directly.
Traditionally, at least two producers and two consumers are required to confirm the new contract price before it is considered an established reference price.
The delay between the first and second settlements highlighted some discontent with the number from both the producing and consuming sides. This largely stemmed from the ethylene (C2) December contract settlement which had been confirmed early on 26 November.
The ethylene settlement, at €1,005/tonne FD NWE, up by €27/tonne, had been regarded as too low by some producers and as a result, propylene would have to settle higher to compensate cracker margins, they said.
“The €22/tonne [increase] was more or less in line with our expectations, but its low if we consider C2,” a key propylene producer said.
From the consumers’ standpoint, ethylene had settled too low, too quickly and this had put undue pressure on propylene to settle higher. Buying ideas had resided around plus-€15-17/tonne.
“There should be more of a gap [between the ethylene and propylene increments] to reflect supply and demand, and consistently lower [than contract] spot values,” a consumer said.
Both the ethylene and propylene markets were generally viewed as finely balanced. However, recent production issues on ethylene derivatives meant that there were pockets of length, while a couple of propylene production issues - notably in Tarragona, Spain, and in Pernis, the Netherlands - meant that there were areas where supply was tighter than expected.
Ethylene pipeline spot prices were pegged around €900/tonne FD NWE, while polymer grade propylene prices were being assessed at €900/tonne CIF (cost insurance freight) NWE.
($1 = €0.76)
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