Initial Europe June MEG contract agreed at a fall of €54/tonne

11 June 2012 15:00  [Source: ICIS news]

LONDON (ICIS)--An initial European monoethylene glycol (MEG) contract for June has been agreed at €925/tonne ($1,156/tonne), a decrease of €54/tonne from May, the buyer and seller involved confirmed on Monday.

The seller attributed the fall in the contract price to the weakening MEG market in Asia and the need to conclude a settlement for June.

“The reason is that the Asian market weakened dramatically,” the producer said. The initial June MEG contract was agreed on a free delivered (FD) NWE basis.

Asian spot MEG prices fell by $88-93/tonne last week, a 15% fall in prices since early May, following steep declines in crude oil futures, a fall in co-feedstock purified terephthalic (PTA) prices and poor downstream demand.

European MEG producers were aiming for increases of at least €20/tonne and targeting prices above €1,000/tonne FD NWE for June contracts, and had argued that current margins mean that they are offering product at a loss, which is unsustainable.

Buyers, however, had been targeting prices as low as €900/tonne, arguing that weaker MEG spot prices and the need to bring European prices to parity with Asia necessitated a reduction.

MEG demand in Europe is weak because of low demand from the downstream antifreeze and polyethylene terephthalate (PET) sectors.

The majority of buyers are destocking and purchasing on a just-in-time basis because of uncertainty over macroeconomic conditions. Buyers are lowering inventories to mitigate exposure to any general economic downturn.

Buying interest has been further limited by expectations that spot prices will fall further in the next few weeks. Several sources said that the market was currently in “panic” with uncertainty over when and where prices would bottom out.

Last week, bulk spot price ideas fell by €10-30/tonne from the previous week, to €750-800/tonne CIF (cost insurance and freight) NWE (northwest Europe) T2 because of weak demand.

Several sources said that traders were selling off material at competitive prices because expectations of further price falls have meant that they do not want to hold on to potentially overpriced stock.

($1 = €0.80)

By: Mark Victory
+44 208 652 3214

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