31 October 2011 16:09 [Source: ICIS news]
LONDON (ICIS)--The initial European November propylene settlement has gained further buyer confirmation, but still lacks second seller support, market players said on Monday.
A second net consumer confirmed that it has followed the initial settlement of €1,013/tonne FD (free delivered) NWE (northwest Europe), down by €55/tonne ($77/tonne) from October, which came late on Friday afternoon.
The agreement was made with the same seller involved in the first agreement. However, there is currently no further confirmation from a second seller.
Some suppliers said they were shocked by what they considered a “steep” reduction in the initial propylene settlement.
One supplier said it was surprised by the fact that an initial settlement emerged on Friday at all, as it considered that buyer and seller ideas were still quite wide apart at that time.
While sellers generally acknowledge that propylene should see a slightly larger reduction than ethylene as the propylene market is slightly weaker, they deem a decrease of €40–45/tonne more reasonable, particularly in view of current cracker economics. November ethylene fell by €20/tonne.
Sellers stress that there is not much room to manoeuvre based on crude and naphtha feedstock costs, which remain high. This is also taking into account some slight softening in naphtha costs over the past month.
They also maintain that the European propylene market is not as long as in recent weeks, mainly due to cracker cutbacks and recent exports to the US and Asia.
One supplier, however, said that it is difficult to gauge a price because of limited market activity and upstream volatility. However, it is aware that the reduction of €10/tonne in the October propylene settlement was lower than expected by several players, which may lead to some greater compensation in the November price.
One or two sellers, however, said they are not prepared to follow the initial settlement, as their own discussions had centred on lower reductions.
By contrast, some buyers also expressed their discontent with the reduction of €55/tonne, which they considered too low. Even the second consumer, involved following the initial settlement, acknowledges that it is a “reluctant number” for both buyers and sellers, and is more of "a compromise" for purposes of clarity downstream at the end of the month.
Another buyer said it refused to accept the decrease of €55/tonne, taking into account the significant premium on contract over spot in Europe over the past few months, as well as the lack of competitiveness for derivatives with other regions, as the propylene contract in Europe remains the highest priced.
It added: “It is a mistake which will hurt both sides. Volumes are at risk.”
The threat to volumes is a particular risk as demand is already subdued because of general concerns about the economy and exemplified by working capital concerns at year-end.
The same buying source said it had wanted to see a three-digit reduction on the European propylene contract, and this was echoed by a few other buyers. They said a significant price drop was necessary in order to stimulate demand both domestically and for exports, by narrowing the gap with other regions.
One of the buyers said that a significant reduction in the European propylene contract price in November would avoid a repeat of the fourth quarter in 2008, when Europe was slow to react to the economic crisis and was priced out of the global market.
($1 = €0.71)
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