FocusUpstream volatility weighs on September C2 and C3 talks

24 August 2011 14:32  [Source: ICIS news]

By Heidi Finch

Upstream price volatility and economic and demand uncertainty make September olefin discussions challenging and could lead to delayLONDON (ICIS)--Upstream price volatility and economic and demand uncertainty make September olefin discussions challenging and could lead to delay, said market players on Wednesday.

“We will wait as long as possible to make sure we have the right data,” said one buyer.

The source added it did not want a “premature” settlement because it was waiting to monitor crude developments in light of the evolving situation in Libya.

This view was echoed by other market players, who suggested that the possible fall of the Libyan regime could trigger further upstream price volatility, as seen earlier this week.

On top of this, there has been the recent turmoil in the financial markets, which caused crude and naphtha values to drop significantly a few weeks ago. However, there has been some rebound since then, which has also added to the lack of clarity in the upstream markets.

Concerns about the general economy have also meant that it is very difficult to gauge demand for September. 

There is caution in the market. Some expect only a moderate improvement versus August levels, but nothing significant – as is traditionally the case in September – because of the uncertain economic outlook.

“Demand for September is quite shaky. We do not expect any real pick-up,” said one customer. The same source said that some of its downstream customers are requesting lower volumes for September, although this is being offset by some substitute business.

One supplier, however, remains more optimistic, expecting business as usual in September, with no immediate effect on demand, despite concerns about the economy.

While there has been a reduction in upstream costs since the end of last month, which affects ethylene (C2) and propylene (C3), discussions are further complicated by the differences in market fundamentals between the two products.

For ethylene, the market is more balanced than for propylene, because there has been some improvement in non-polymer demand, particularly in the second half of August.

As a result, initial indications for September ethylene point to a rollover to a slight reduction of €10–20/tonne ($14–29/tonne), as balanced market fundamentals are being weighed against recent feedstock price relief.

Sellers, however, maintain that if crude and naphtha remain at the same level or recover further, they will hold out for a rollover, particularly in view of the balanced-to-possibly tightening tendency. They attribute the latter to a possible pick-up in demand, coinciding with the forthcoming maintenance schedule.

For propylene, the general expectation is of a price reduction and possibly to a larger extent than is possible for ethylene, because the propylene market is long. This is because of subdued market activity during the past few months and a spate of derivative plant outages, planned and unplanned. Exports booked over the past few weeks, mainly to the Americas, have meant that the coastal region is less long than some inland pockets.

Sellers are trying to defend their current cracker margins, but some acknowledge that propylene is likely to be under some downward pressure. However, one producer said it expects the reduction to be less than €50/tonne, based on current upstream costs.

Buyers, however, are pushing for larger reductions of €50–60/tonne, if not more, from a feedstock cost and market perspective. 

In addition, propylene spot prices are trading at least €200/tonne below the August contract level, which suggests that a downward correction is highly likely in September.

One buyer considers the August propylene settlement was “a compromise” and did not reflect the supply/demand situation, which, it says, will also necessitate a downward price adjustment in September.

While some players think that there could be a delay in the September olefins settlements, others are not convinced.

Some suggest that the views of buyers and sellers are fairly well aligned in terms of market fundamentals and a settlement is not too far away. 

In addition, one buyer suggests that upstream feedstock data is normally taken into account retrospectively over the past month, considering that expectations about further upstream direction plays only a secondary role and therefore should not hold up contract discussions.

The European ethylene contract price for August was agreed at €1,120/tonne FD (free delivered) NWE (northwest Europe), up by €30/tonne from the previous month.

The European propylene contract settlement for August was confirmed at €1,115/tonne FD NWE, down by €15/tonne from July.

($1 = €0.69)

For more on ethylene visit ICIS chemical intelligence


By: Heidi Finch
+44 20 8652 3214



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