European crackers may cut operating rates on bearish C2, C3 sentiment

03 June 2011 15:38  [Source: ICIS news]

LONDON (ICIS)--Bearish sentiment on the European ethylene (C2) and propylene (C3) markets because of weakening demand is leading to speculation over current operating rates at European crackers, market sources said on Friday.

Reduced demand from the key monomer derivatives polyethylene (PE) and propylene (PP) sectors together with a stable-to-firm naphtha feedstock would usually result in some rate reductions as cracker operators have no incentive to produce more C2 and C3 than absolutely necessary.

At least one major producer appears to be in line with this view; “I would expect many to be running reduced. We are,” it said.

The producer added that because PE and PP demand had reduced significantly at the end of May/early June because of de-stocking, the only option was to cut rates at the least efficient crackers rather than chase volumes.

However, the overall picture was not clear and opinions were mixed.

“We are not hearing about cutting [cracker] rates, it’s more [about a] cautious attitude,” a second major producer said.

The producer agreed that the general supply and demand situation had changed over the past few weeks and that there was more risk of a downside than had been seen previously. However, in the producer's view the market was still uncertain and it could still go either way.

A clear picture regarding demand levels for June would not be available until mid-month, it added.

A third producer said that it was not aware of any “structural change to cracker utilisation rates” in Europe and that it had not found anything more than the usual day-to-day optimisation tweaks in place.

A fourth producer said that while polymer margins were under pressure, “for now at least [the] monomer market in the prompt [period is] balanced, not short for sure, but no one going tank-tops.”

Its own view was that crackers were not yet trimming rates significantly.

In related news, market sources were awaiting the successful restart of BASF’s No 2 cracker at Ludwigshafen in Germany following planned maintenance. A company source said that the cracker, which has a nameplate capacity of 400,000 tonnes/year of ethylene, was “slowly restarting” and that on-spec production was anticipated at the beginning of next week.

OMV’s Austrian cracker based at Schwechat is due to be restarted around 10 June. Planned maintenance began 5 May. The restart of this 500,000 tonnes/year ethylene cracker will mark the end of the spring cracker maintenance season in northwest Europe.

Ethylene and propylene June contract prices settled last week at a reduction for the first time in seven months because of weaker feedstock and a softer downstream outlook.

Ethylene was agreed at €1,185/tonne ($1,717/tonne), down by €45/tonne, while propylene settled at €1,205/tonne, down by €40/tonne.

Both contracts are done on a free delivered (FD) northwest Europe (NWE) basis.

($1 = € 0.69)

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By: Nel Weddle
+44 20 8652 3214

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