UpdateSeptember Europe C2, C3 agreed lower on upstream volatility

26 August 2011 15:55  [Source: ICIS news]

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LONDON (ICIS)--The European ethylene and propylene contract prices have been fully agreed lower for September, as upstream price volatility and economic uncertainty are factored in, although the magnitude of decrease differs according to market fundamentals, said market players on Friday.

The first ethylene (C2) contract settlement, at €1,115/tonne ($1,593/tonne), down by €5/tonne from August, was reached between one net producer and one net consumer. The agreement has been concluded on a free delivered (FD) northwest Europe (NWE) basis.

The settlement was soon followed by another involving another net producer and net consumer. A third net manufacturer has also officially confirmed this figure with the same net consumer.

The sellers involved in the September ethylene agreements said that the number is largely in line with their expectations. One of the suppliers said that the balanced market, with a possible short tendency (because of the forthcoming cracker schedule), is being weighed against lower upstream crude and naphtha costs compared with the end of last month and general economic concerns.

The fact that crude and naphtha prices are creeping up again, following the drop earlier in the month, resulting from the recent turmoil in the financial markets and only small differences in buying and selling ideas, resulted in only a marginal reduction, said buying and selling sources.

Discontent about the ethylene settlement, however, was noted in a few cases.

One producer said it had wanted to hold out for price stability to restore market confidence and to avoid jeopardising cracker economics, given the loss in certain co-product credits. It, however, acknowledges that “the number has been done and it is not a big difference”.

By contrast, two pure consumers are dissatisfied with the reduction of €5/tonne agreed by net integrated buyers, believing that it could have gone down by at least €10/tonne as a fairer reflection for pure non-integrated buyers.

For propylene (C3), the first settlement was agreed down by €37/tonne at €1,078/tonne FD NWE, between a net producer and a pure consumer. This was followed by a net consumer with the same producer, which was involved in the initial settlement, and a second net manufacturer.

The reduction of €37/tonne is considered a “compromise” between the buying and selling sides, reflecting the residual length in the market. The causes are some weakness in the downstream market and recent derivative problems, and the reduction in upstream costs compared with the end of last month. The decrease in the contract price was also necessary to make derivatives competitive with other regions.

The customer involved in the first settlement is slightly disappointed that it had not secured a larger reduction of €40/tonne, but said that derivatives were pushing for an upstream settlement and minus €37/tonne was the “next best option”.

($1 = €0.70)

For more on ethylene visit ICIS chemical intelligence

By: Heidi Finch
+44 20 8652 3214

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