Europe cracker margins more than double on Feb C2 contract price

06 February 2012 16:51  [Source: ICIS news]

By Nel Weddle

LONDON (ICIS)--European cracker margins based on naphtha feedstock have more than doubled on the back of the €99/tonne ($130/tonne) increase in the February ethylene contract price and a 7.8% hike in co-products credits, ICIS margin analysis showed on Monday.

The margin increase would be higher but for a $5/tonne rise in naphtha prices which translated into a feedstock increase of 0.5% due to the unchanged dollar-to-euro exchange rate.

The January average cracker margin had been at its lowest since December 2010 at just €163/tonne. Poor cracker margins were described as untenable and unsustainable and were behind olefins’ producers resolve to push for sizeable hikes in the ethylene, propylene and butadiene (BD) contract prices for February.

The improvement in cracker margins so far will no doubt go some way to pleasing European cracker operators, but with the first quarter 2012 average-to-date margin at €167/tonne, the lowest since 2009, there is still much room for improvement, particularly since euro-based naphtha costs are at their highest since ICIS records began.

Europe cracker margins

Naphtha prices reached a high of €766/tonne in the week ending 3 February. The last time euro-based naphtha costs came this close was in July 2008.

Spot naphtha margins rose by €31/tonne, primarily because of a 2.6% rise in co-product credits led by higher spot propylene prices. Spot and contract margins are almost on a par.

Co-product credits are the credits attributed to cracker operators derived from the values they achieve on the sale of ethylene co-products such as propylene and butadiene.

Cracker operators have long been concerned over the double whammy of firm outright naphtha prices combined with the weak euro. The volatility in upstream price movements is difficult to cope with, adding to the uncertainty already being felt with regard to derivative performance because of macroeconomic worries.

February contract prices settled at €1,219/tonne for ethylene and up by €90/tonne to €1,105/tonne for propylene.

The February BD contract price settled at €1,935/tonne which was up by €235/tonne.

The contracts settle on a free delivered (FD) northwest Europe (NWE) basis.

($1 = €0.76)

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By: Nel Weddle
+44 20 8652 3214

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