25 January 2011 14:24 [Source: ICIS news]
LONDON (ICIS)--The European butadiene (BD) monthly contract price (MCP) for February has settled at €1,440/tonne ($1,973/tonne), up €100/tonne or 7.5% from January, because of tightening supply and strong global demand, market sources said on Tuesday.
The MCP settles on a free delivered (FD) northwest Europe (NWE) basis.
“The main driver is the global market. We cannot avoid looking at what is happening around us,” said a major consumer.
Nevertheless, the extent of the increase would still be a shock once communicated internally, the consumer added.
Another major consumer said that the €100/tonne hike was inevitable “in light of the market, with Asian deals at $2,200/tonne and what appears to be desperation in the US [to find supplies], although that [the number] was not my initial idea”.
Europe is a net exporter of butadiene, which means that the market situation in Asia and the US market is always a key topic during contract negotiations.
Contract parties usually aim to align the European market - the vast majority of which is priced on a contract basis - closely with developments elsewhere to avoid an unneccessary exodus of European material. This was the primary reason for the shift from quarterly to monthly contract pricing last month.
Monday’s 9 cents/lb nomination from one producer for February contracts in the US, which if agreed would take the contract to $1.00/lb delivered - equivalent to around €1,609/tonne - also reinforced the bullish view of the market. Spot levels in the region were heard as high as $1.13/lb delivered in the week ending on 21 January.
The first European settlements were between a major consumer and three of its suppliers, the major consumer and two suppliers have confirmed. The third supplier does not comment because of its media policy.
Two other key European consumers also agreed to settle at €1,440/tonne, although direct confirmation from one of the buyers was still pending.
One of the producers that had settled said it was happy with the settlement, and while “it could have been pushed higher” it added: “I’d rather have a good market, sustained, than risk it collapsing.”
However, two contract sellers were known not to be following the settlement officially.
One said that this was because the settlement “was not reflective of market conditions” and that it would still “leave the arb wide open”.
The other stated that it was not “part of the deal”, but accepted that the number would be published in line with the traditional “two plus two” procedure in which two producers and consumers are required to agree and confirm a price for it to be considered a valid reference contract price.
One BD buyer, not usually directly involved in the contract settling process, said it had been anticipating a rise of €60-70/tonne as this was an increase it could justify.
“€100/tonne was not what we wanted,” it said, adding “Europe has got a balanced market, but [we] have been hit again by the drama outside Europe”.
Spot numbers were being pegged around €1,450-1,500/tonne FD NWE on the domestic market, but export prices were talked in excess of $2,000/tonne FOB (free on board) ARA (Antwerp, Rotterdam, Antwerp).
($1 = €0.73)
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