28 June 2012 17:16 [Source: ICIS news]
Correction: In the ICIS story headlined "Europe July ethylene, propylene contracts confirmed down €170/tonne" dated 28 June 2012, please read in the fifth paragraph ...October 2010... instead of ...November 2010... A corrected story follows.
LONDON (ICIS)--European ethylene and propylene contract prices for July are fully confirmed down by €170/tonne ($213/tonne) at €1,035/tonne and €935/tonne respectively, market sources said on Thursday.
The settlements mark a record-high adjustment – the previous being the €120-125/tonne decrease seen in the May to June movement – since monthly contract pricing began in January 2009.
The contract prices were expected to fall significantly on the back of a weaker upstream market and ongoing soft supply and demand fundamentals.
Olefins producers had hoped that the significant reductions for the June ethylene and propylene contracts would be enough to stimulate demand, or at least stave off further cutbacks, but the decline on the upstream markets through June again saw buyers adopting a hand-to-mouth stance in anticipation of another fairly sizeable reduction in the contract price.
Contract prices are now at their lowest value since December 2010 and October 2010 for ethylene and propylene respectively.
Overall, the reaction from olefins producers, buyers and traders, is that they are fair settlements and clearly reflect the issues facing the European ethylene and propylene industry.
“It puts us in a good position versus the global market,” a trader said, adding: “I hope its enough.”
One major producer said that it had been tough to marry the needs of the olefins producers in terms of cracker margins and concerns over upstream volatility, with the overall health of the derivatives markets.
It added that while it had been able to secure some customer support at a higher contract price, it wanted to secure support from 100% of its customers covering a broad spectrum of derivatives which, it said, was a more responsible and cohesive approach to the difficult challenges affecting the industry at the moment.
Other producers said that while the settlements were perhaps a little more than they had anticipated – particularly for propylene – the settlements were in line with expectations and were in the end “what the industry needs.”
“It’s a correction that was needed,” a polyolefins producer said.
“It’s a good settlement, in that producers have recognised the big imbalance in the market,” a major propylene consumer said.
One buying source said: “It’s the biggest-ever reduction, the whole market took the need for a decrease very seriously”.
How the markets pan out in July has yet to be seen, but sources said that they hoped for some stability over the summer period.
“Let’s see what this does for demand. I don’t know whether the summer is the right time to [try to] trigger demand,” the polyolefins producer said, adding; “[polymer] producers still have significant stock to get through - July and August could be pretty slow.”
"Europe and the US at parity is a big benefit," the major propylene consumer said however, and it hoped this would mean an uptick in demand.
($1 = €0.80)
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