European MEG contract discussions likely to be prolonged

02 March 2012 18:52  [Source: ICIS news]

LONDON (ICIS)--Discussions regarding the March mono ethylene glycol (MEG) contract price are likely to be prolonged as price ideas vary between a decrease, a rollover and a slight increase to up by around €50/tonne ($67/tonne), sources said on Friday.

"Discussions have just started and we [buyers and sellers] have such different ideas," a producer said.

The upstream ethylene increase of €86/tonne from February to March is the crux behind sellers' motivation to increase MEG prices from February's €1,065/tonne FD (free delivered) NWE (northwest Europe).

The MEG contract could be the highest on record because of limited availability and upstream developments, the producer said earlier in the week.

"We are looking for an increase on the back of ethylene costs going up," a second supplier said.

Upstream ethylene supply has tightened on the back of a couple of unexpected cracker outages that resulted in force majeure declarations, and ethylene spot numbers are being indicated above the prevailing contract price of €1,305/tonne.

"…according to our view, the force majeure at Shell will have a significant effect on the MEG market," the first producer added.

Both buyers and sellers are looking for compensation for the €41/tonne MEG increase in February.

"Whatever settlement there will be will be bad for somebody," said a customer pushing for "an important decrease".

"A rollover would be the worse parity settlement of the past four years," the customer added.

A second customer said it would not accept a single euro over a rollover because of the situation in Asia.

Most buyers acknowledge that the cost of European production has increased and this is bound to impact the final settlement, but insist that to bring prices in line with Asia and with spot prices in Europe, the contract price cannot be based solely on the ethylene increment.

With such extreme sentiment and price ideas in the market, it is unlikely that a compromise will be satisfactory for either side, sources agreed.

"Over the last three months the discipline we had of settling early has gone. We have long ongoing discussions and I expect them to continue in March," a reseller said.

($1 = €0.75)

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By: Caroline Murray
44208 652 3214

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