Initial Europe August propylene settlement fails to find support

27 July 2011 13:48  [Source: ICIS news]

By Nel Weddle

LONDON (ICIS)--The initial August European propylene settlement, agreed at a rollover €1,130/tonne, has so far failed to find support among remaining contract consumers, market sources said on Wednesday.

Consumers from both the integrated and non-integrated polymer side have generally described it as being unacceptable and out of line with reality, arguing that the settlement is contradictory to current market conditions.

While many have recognised that naphtha prices have increased since the last settlement, which has impacted heavily on cracker margins, the view is that the very lengthy supply and demand balance in Europe should have had a more significant influence.

“We will not confirm,” said one major propylene buyer. Another agreed, saying: “We will not accept, there is no second buyer to confirm at this stage.”

The rollover was a surprise even to some producers, sources said, and especially so since this had been the opening position of most suppliers.

“A rollover was the opening position of all producers, all producers,” a third major consumer said.

A fourth consumer said: “It's a bit bizarre.. rollover was the opening view of sellers. Yesterday, lower numbers were offered firm.”

Additionally, the settlement gave the wrong impression of the market in keeping the propylene value higher than that of ethylene.

Ethylene settled for August at €1,120/tonne, up by €30/tonne ($43/tonne) on the back of higher naphtha, balanced supply and more buoyant conditions amid positive sentiment in Asia.

On the contrary, propylene in Europe is still very long with poor demand and low consumption exacerbated by unplanned derivative issues.

This is leading to spot prices at least in the mid-to-high €800s/tonne CIF (cost, insurance, freight) NWE (northwest Europe), far below the July contract price.

While unplanned derivative issues would be expected to be resolved, consumers said the problem was that downstream demand was structurally weak as more competitive volumes could be found elsewhere.

One buyer explained that a reduction in costs was absolutely needed in order to stimulate demand.

The initial propylene settlement on Tuesday was between two major producers and a major non-integrated consumer.

One of the settling producers said it considered the rollover “the logical outcome for August”, citing the conflicting factors of higher upstream costs versus lengthy supply. 

These factors offset each other, the producer said, particularly as there was “some light at the end of the tunnel regarding sentiment in Asia”, which would likely support the European market.

The other settling producer said it believed the demand situation would slowly improve throughout August, while it remained concerned about a further upswing in naphtha prices.

“July margins disappeared because of crude and naphtha. We have to take care.” it said.

The settling consumer was not immediately available to comment.

Several contract players said discussions are continuing, leading to the possibility that another number may emerge.

($1 = €0.69)

For more on 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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