30 September 2011 12:00 [Source: ICIS news]
By Nel Weddle
An initial settlement was agreed on Thursday between a major integrated consumer and one of its suppliers, a major olefins producer.
Three other producers and two other consumers, both non-integrated, have since confirmed agreement at €1,068/tonne.
Sources said that the discussions were tough.
For producers, there was not much room to manoeuvre they said, since cracker margins are “below cycle average” as feedstock prices had crept up over the month. A rollover had been targeted by sellers in most cases.
On the other hand, no one could deny that propylene is weak and the supply and demand balance long. On top of that, there is ongoing uncertainty in the economic outlook which is impacting negatively on consumer confidence.
One source said that part of the reasoning behind the settlement was that in times of uncertainty, when the situation is unclear, “it is probably best to keep things fairly stable”.
The prospect of further cracker cutbacks and scheduled maintenance shutdowns still to be completed had also contributed to producers’ resistance to lower contract prices.
However, some market observers were not surprisingly a little shocked at the settlement. They had anticipated more of a drop given the length in the market which has prevailed for the last three months and has led to a huge chasm between spot and contract prices.
They said that ongoing weakness and further price falls in Asia and US will put further pressure on European derivatives from a competitive point of view, and with the end of the year just around the corner, the demand outlook as a result was very poor.
“Maybe we will have to see some [downwards] correction in November,” a producer said.
The September contract price settled at €1,078/tonne FD (free delivered) northwest Europe (NWE).
Sources were keen to complete contract discussions ahead of the 45th annual European Petrochemical Association (EPCA) meeting being held in Berlin, Germany, over 2-4 October.
($1 = €0.74)
For more on propylene visit ICIS chemical intelligence
Click here to find out more on the European margin reports
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