24 February 2012 14:45 [Source: ICIS news]
LONDON (ICIS)--The European ethylene market is poised to reach a record-high contract price for March on the back of margin pressure because of high upstream costs, market sources said on Friday.
Mounting tensions between Iran and the West pushed Brent crude to its highest level since May 2011 on 23 February and it was trading at $123.75/bbl at noon on Friday.
Naphtha prices were assessed at $1,048–1,056/tonne (€786–792/tonne) CIF (cost insurance freight) NWE (northwest Europe) at noon on Friday. This compares with prices in the mid-$900s/tonne at the time of the current €1,219/tonne February contract settlement.
The highest contract price was seen in May 2011 at €1,230/tonne FD (free delivered) NWE. Sources said that it is clear that the February to March increment will be more than the €11/tonne difference required to break the May 2011 record.
March contract discussions are under way but progress is slow, sources said. Not all contract parties are available because of holiday absences, while those still at their desks are in no mood to rush the negotiations.
Ethylene producers are calling for a three-digit increase but consumers are keen to limit any increment to two-digits.
Cracker margins in January had been untenable and unsustainable producers said. While the €99/tonne increase for February helped improve margins enormously, the recent uptick in upstream prices was again weighing heavily on profitability.
“January was bad, February was better until end-February,” a major producer said. “We are still losing money. I am concerned nothing will remain in the pocket for crackers.”
Another major producer agreed: “January was horrible, February was better, but it has started to be horrible again.”
Consumers accept that margins are once again under pressure from upstream costs but refute the need for a three-digit increase.
“[The] pressure on cracker performance is understood and I think the whole downstream appreciates and expects big increases, but that does not mean discussions are easy,” a major consumer said.
“[Cracker] margins have improved in February compared with January so an increase of the same magnitude as last month is not realistic,” a second major consumer said.
“Everyone from the buyer’s side will get hit in the face, we’re just hoping it won't be too painful,” it added.
($1 = 0.75)
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