US Nov ethylene fails to settle, two-month deal likely

07 December 2010 18:16  [Source: ICIS news]

Ethylene plant in the USHOUSTON (ICIS)--US ethylene contracts for November remained unsettled on Tuesday, and market participants said the likely outcome was that November would settle in a double-month agreement with December, probably early next month.

US ethylene contracts usually settle at the end of the month being negotiated, or soon after the start of the following month.

"At this point it looks like we are headed in that direction," a settlement participant said, referring to a double settlement with December.

It was unclear who or what the holdout for November was, but US producers were expected to seek a substantial increase from October, following higher spot prices and increased production costs last month.

November ethylene contracts were expected to rise by 7.00 ($154/tonne, €115/tonne) or 8.00 cents/lb, sources predicted last week, but projections for an 8.50 cent/lb increase were also heard.

The sharp increase was mainly fuelled by a surge in ethylene spot prices, which soared by nearly 30% in the first week of November after two crackers in Texas were downed by a lightning strike.

The outage left the US with six units off line, as four other crackers in Texas and Louisiana were dealing with planned maintenance and unexpected outages at the time.

An extended outage at a cracker in Louisiana in mid November lent additional support to monomer prices.

Ethylene production costs also rose last month, climbing on average by 3.50 cents/lb, according to a market participant.

The increase resulted from a jump in the price of ethane, a key US ethylene feedstock.

Mont Belvieu ethane prices in November averaged just below 66.00 cents/gal for end-of-week closings, up from 59.50 cent/gal in October, as assessed by ICIS.

The rise in ethane stemmed from increased demand for the product from US crackers.

Ethane in October accounted for 59% of the ethylene feedstocks by volume, up from 54% one year earlier, according to an industry survey.

The feedstock traded on Tuesday at 66.25-66.75 cents/gal.

Meanwhile, ethylene spot prices were trending down after a lull in the market the previous day.

The monomer was bid at 47.50 cents/lb, while an offer was heard at 50.75 cents/lb for December delivery on the Williams system.

Ethylene for December traded last week at 50.000-51.375 cents/lb, down from 51.750 cents/lb in the last week of November and off a high of 53.50 cents/lb last month.

The softening in the spot market could lead to a small drop in December contracts, offsetting part of the November increase once negotiations get underway for a combined two-month agreement.  

Two- or even three-month ethylene settlements are not uncommon in the US market.

A double-month agreement took place as recently as September, when the market settled for July and August in the first week of that month.

A three-month settlement occurred in 2009, when the monomer settled for July, August and September at the same time during the first week of October last year.

Major US ethylene producers include Chevron Phillips Chemical, ExxonMobil, INEOS, LyondellBasell and Shell Chemicals.

Buyers include Dow Chemical, Georgia Gulf, Occidental Chemical (OxyChem) and Total.

($1 = €0.75)

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By: William Lemos
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