Europe cracker margins up 17.5% last week, highest since Dec 2008

25 June 2012 16:50  [Source: ICIS news]

LONDON (ICIS)--European contract cracker margins rose 17.5% in the week ending 22 June from the previous week as feedstock naphtha prices fell to their lowest level since September 2010, according to ICIS analysis.

Contract margins are at their highest since December 2008 because of a 7.3% reduction in euro-based naphtha costs. Naphtha prices plunged by $60/tonne (€48/tonne) last week, mirroring events on the crude oil market which saw Brent prices sink to new 18-month lows.

The June margin average to date is at €821/tonne compared with May’s average of €758/tonne.

The latest margin figures will be seized upon by ethylene consumers who are keen to see the European contract cut back in July, citing their own poor demand and squeezed margins due to more competitively-priced ethylene and its derivatives available ex-Middle East and Asia.

The wide gap between spot and contract margins – spot margins trail behind contract margins by almost €600/tonne – highlights the ongoing disparity in ethylene prices between regions.

Spot demand for ethylene has been reduced to a bare minimum over the past couple of months. Spot pipeline prices are about €300/tonne below the contract benchmark for June, while deep-sea prices - usually a good indicator of the global situation - are about €400/tonne below.

Ethylene producers had hoped that the €120/tonne reduction for the June contract would be enough to stimulate demand, or at least stave off further cutbacks, but the decline on the upstream markets has again seen buyers adopting a hand-to-mouth stance in anticipation of another fairly sizeable reduction in the contract price.

The June ethylene contract settled at €1,205/tonne FD (free delivered) NWE (northwest Europe). Sources suggest anywhere between minus €70/tonne and as much as minus €200/tonne for July.

A settlement is expected by the end of this week.

($1 = €0.80)

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By: Nel Weddle
+44 20 8652 3214

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