FocusEurope December propylene fully agreed at €995/tonne

30 November 2011 11:19  [Source: ICIS news]

By Heidi Finch

Europe December propylene falls €18/tLONDON (ICIS)--The European December propylene contract price has been fully confirmed down by €18/tonne ($24/tonne) at €995/tonne on Wednesday, following second seller support.

The second settlement was reached between a second net producer and a third non-integrated buyer.

In addition, an integrated buyer said it has also followed the initial settlement with a supplier, although it was not able to disclose the name of the seller in question.

The initial propylene settlement was agreed early on Tuesday afternoon and was between two non-integrated buyers and the same net producer.

The December propylene agreement, which was concluded on a free delivered (FD) northwest Europe (NWE) basis, marks the first time that the European propylene contract price has moved back into three-digit territory since December 2010, according to ICIS price history. This follows 11 successive months of European propylene contract prices in four digits.

Some buyers said the €18/tonne fall was close to their original expectations of a reduction of around €20/tonne.

They said that a price decrease was necessary in order to reflect the ongoing weakness in the downstream market.

One buyer said that sellers needed to reduce propylene prices in order to incentivise any buying activity in December, which is traditionally a slow period because of the Christmas holidays. This is likely to be exacerbated by underlying economic concerns this year.

Some customers hoped for larger price reductions of €40–80/tonne to try to restore competitiveness with other regions, but this was not achievable in view of current feedstock costs and ailing cracker margins, and the decrease of €18/tonne was seen as more of a “compromise”, according to some buyers.

One customer said a price reduction was widely expected because demand is still poor. It said it understands the cost situation, but added that a monthly contract price had been set up in order to be more responsive to supply and demand.

Views from sellers about the lower December propylene settlement were mixed.

Suppliers had wanted to keep prices stable in December, particularly in view of the recent erosion on cracker margins.

Average ethylene cracker (naphtha) margins for November are at €399/tonne, which is 13% lower than October and the lowest since April, according to ICIS margin data in the week ending on 25 November.

Cracker economics have been under pressure because of ongoing relatively high feedstock costs and the recent reductions in the propylene contract and spot pricing, as well as reduced cracker output. However, sellers were also aware of the soft market conditions.

One seller said the propylene settlement represents a “fair number, looking at what is happening in the world [with the economy]. We are sharing the pain in the market”.

It added that the cautious buying sentiment throughout the value chain at least until year-end, because of economic uncertainty and year-end working capital concerns, also necessitated a propylene price reduction in December.

The same source acknowledged that there has been some slight softening in naphtha costs over the past month, but overall there has been little change in feedstock costs, which means that there was no room for a larger decrease based on cracker economics.

However, another manufacturer expressed dissatisfaction with the price reduction, which it considered futile and only served to “put the money out of the pocket of everybody – buyers and sellers – and it won't change the story of the market”.

The same source also said it did not see any point in the slightly larger reduction for propylene when compared with ethylene, which was agreed down by €15/tonne at €1,080/tonne FD NWE for December, stating that it saw little difference in market fundamentals.

Others, however, had expected a slightly larger price reduction for propylene over ethylene in December, based on the fact that the market is longer for propylene than for ethylene.

While distressed volumes in the European propylene market had disappeared during November, following significant cracker cutbacks and some delayed restarts, some players suggested that it was lengthening slightly into December because of further demand softening at year-end, some derivative plant outages, and ongoing good run rates at other propylene-producing units. However, there is also the possibility of further cracker cutbacks or idling measures to counteract this.

($1 = €0.75)

For more on propylene and ethylene visit ICIS chemical intelligence

By: Heidi Finch
+44 20 8652 3214

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