Europe olefins March contract talks hampered by upstream volatility

23 February 2011 16:28  [Source: ICIS news]

LONDON (ICIS)--European ethylene (C2) and propylene (C3) discussions for March contract prices are being hampered by volatile crude and naphtha markets which have been driven up sharply by political unrest in the Middle East, sources said on Wednesday.  

“To fix a [contract] number is like [playing] Russian roulette,” one major olefins producer said.

"There is a lot of uncertainty,” it said. “From my point of view, I would like to wait for a while - we don’t know what will happen even in the next 12 hours.”

Usually, both producers and consumers like to settle contracts on a timely basis, which means having a number established before the start of the month being negotiated.

As recently as last Friday, most March contract talk was suggesting that a settlement would come in €10-30/tonne ($14-41/tonne) higher for ethylene and €25-40/tonne higher for propylene.

Increases had been widely expected because of the onset of the planned maintenance season, recent unplanned production issues which had impacted on supply, and also healthy demand.

However, the heightening of tensions in the Middle East and North Africa, and particularly in Libya - a key oil and olefins exporter for the Mediterranean region - was putting strong upwards pressure on crude as well as directly and indirectly affecting olefins supply within Europe.

This had led olefins producers to revise offers this week to plus-€50/tonne and above for ethylene and at least plus-€70/tonne for propylene.

Sellers said that buyers were “understanding of our position” and that they too had been raising their price ideas, albeit not to the same extent.

There were fears that a too-high price would start to kill demand as derivatives producers struggled to recover their costs.

Most sources were still confident of coming to a realistic March contract  price agreement by Friday.

Ethylene settled for February at €1,135/tonne and propylene at €1,105/tonne. The contracts are settled on a free delivered (FD) northwest Europe (NWE) basis.

($1 = €0.73)

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By: Nel Weddle
+44 20 8652 3214

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