Spot ethylene rebounds in Europe, propylene under pressure

15 July 2011 12:15  [Source: ICIS news]

LONDON (ICIS)--Spot ethylene prices are cautiously firmer this week, on the back of higher euro-based naphtha costs and more positive sentiment in the key Asian market, market sources said on Friday.

Spot pipeline prices bottomed out two weeks ago in the low €800s/tonne ($1,120s/tonne) FD (free delivered) NWE (northwest Europe). Prices had weakened considerably on lengthening supply, because of slowing derivative demand.

“We scratched the bottom and now prices are going up,” a major producer said.

While no trade has been openly reported this week, sources are now indicating prices at or above €900/tonne.

The July contract price settled at €1,090/tonne.

Ethylene is more balanced now, at least we are getting more [buying] interest,” another major producer said.

A third producer said cracker rate reductions are playing their part in re-balancing ethylene supply with demand, but some unexpected shorts meant that perhaps the cutbacks had been overdone.

“It’s almost comical how producers overdo it on the rate cuts. We now have people trying to reduce swap volumes as they now find themselves short” the producer said, adding: “All my crackers are running well, [though] still reduced to match demand.”

Derivative demand was better than had been expected for July.

“My colleagues are much less worried for the coming weeks, volumes are much better than June,” a source said.

Sources said that volumes are still available – it’s just that sellers’ price ideas were higher.

“With Asia picking up, we are not too eager to offer ethylene to Europe at cheap prices,” a trader said. It said that previous price levels of $1,200–1,250/tonne CIF (cost, insurance & freight) were no longer workable.

“We would offer Middle East product well above $1,300/tonne in the north,” the trader added.

A very prompt 9,000 tonne Iranian cargo was being offered around Europe over the past week, sources said, but as interest picked up in Asia, the cargo went there instead.

One Middle Eastern producer said it believed the market would stabilise before any significant changes would be seen.

“Stabilisation is crucial for all markets now,” it said.

Propylene prices, meanwhile, are still under pressure in Europe, because supply remains long.

Efforts were being made to export polymer-grade tonnes to either the US Gulf or Latin America. Sources said that some tonnes had been booked on the vessel – Baltic Gas – bound for Altamira, Mexico. Others said that a number of vessels were on subjects such as the Happy Bird, and Jotagas.

Export prices need to be below €1,000/tonne FOB (free on board) to be workable, and sources are pegging numbers within a €950–980/tonne FOB NWE range. This compares with the prevailing July contract price of €1,130/tonne FD NWE.

On the domestic market, even consumers are looking to remove a few extra tonnes from their systems. However, inland prices are still heard above €1,000/tonne FD.

Market sources are beginning to speculate over the outcome for August contracts.

Unlike previous months, where the price direction has always been very clear, sources said that this time around the outcome was less obvious.

"It’s going to be a difficult discussion. On the one hand we have higher naphtha, but on the other uncertainty regarding derivatives slowdown,” an integrated consumer said.

“It’s too early to say, but I don’t think I could agree to a euro below [the current contract price]. We are really borderline [in terms of margins],” a Mediterranean producer said.

($1 = €0.71)

For more on ethylene and propylene visit ICIS chemical intelligence

Click here to find out more on the European margin reports

By: Nel Weddle
+44 20 8652 3214

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