Europe MEG buyers, sellers far apart on July contract talks

04 July 2012 17:25  [Source: ICIS news]

LONDON (ICIS)--Discussions for the European July monoethylene glycol (MEG) contract price have begun with buyers' and sellers' price ideas far away from each other, sources said on Wednesday.

"We are not moving from a rollover," a seller said, adding that it had no intention of agreeing to customers' ideas of below €850/tonne ($1,076/tonne) FD (free delivered) NWE (northwest Europe).

A second seller is seeking to get as close to a rollover at €925/tonne as possible, particularly in view of this week's bullish increases in the dominant Asian market.

Spot Asian prices peaked at $910-915/tonne CFR (cost and freight) CMP (China Main Port) on Wednesday but fell to bids and offers of $890-920/tonne, according to a trader. This is up from deals done on 29 June at $850-855/tonne, according to data from ICIS.

Asian July contract price nominations, which are also indicators for contractual discussions in Europe, dropped by $140-180/tonne compared with June levels.

"Our [contract price] ideas are very much apart," a buyer said of an initial contract discussion with its supplier.

Customers insist on reflecting at least some of the record €170/tonne July decrease in upstream ethylene to €1,035/tonne FD NWE, in the July MEG contract price. While the full €100/tonne plus equivalent of the ethylene drop into MEG may not be realised, figures of €845/tonne and just below this are reported as realistic customer targets.

The buyer justified a decrease based on weak demand and low European spot prices.

Observers of the European contractual process are anticipating a decrease of between €30-80/tonne, depending on source.

"I think the signals…of a bearish sentiment are over and now people are caught by surprise by the better demand than they had originally expected," a third seller said.

Demand for MEG into antifreeze has been disappointing so far, but there are indications that buyers are about to make decisions to take in MEG. The peak season is fast approaching and some industry sources expect to see prices bottoming out in July.

After an unseasonably quiet bottling season for the downstream polyethylene terephthalate (PET) sector, news is coming in of a possible turnaround in market dynamics.

"The [PET] market is about to turn up. Numbers have increased in Asia by $100/tonne in the last 10 days," according to one source.

Due to lacklustre MEG demand at least until now, the net importer, Europe, has been relying on domestic availability and imports have taken a back seat. A pick-up in requirements could result in a sudden rush for product and consequently higher prices, sources said.

"Two European [MEG] plants stop in August and this will certainly mean an increase [in price] by the middle or end of July," a buyer speculated.

BASF in Ludwigshafen, Germany, and INEOS Oxide in Cologne, Germany, are due to shut their ethylene oxide (EO) and EG plants in August, while PKN Orlen in Plock, Poland, closed its plants for maintenance in June and plans to remain shut until August. 

Contract discussions continue.

($1 = €0.79)

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By: Caroline Murray
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