EPCA ’12: Short-term focus both key and problem for Europe olefins

07 October 2012 08:15  [Source: ICIS news]

By Nel Weddle

LONDON (ICIS)--As European olefins players prepare for the 46th annual European Petrochemical Association (EPCA) meeting in Budapest they could be forgiven for wondering what exactly has changed since the last one in Berlin.

In essence, not a lot. There is still poor visibility, uncertainty over the global economic outlook and turbulence in the eurozone.

Business habits have changed, however, in order to better combat these trying times – players manage inventory very carefully and align production very closely with demand, which in turn is hand to mouth for the majority of the time with no-one really knowing what is around the next corner.

“We have the same question marks as last year,” an olefins trader said.

This almost pedantic approach, or hyper-cautiousness, with regard to managing stock levels has caused other issues this year, leading to limited flexibility or ability to deal with last minute unplanned problems upstream or downstream.

This has been partly responsible for the unprecedented rollercoaster ride that has been such a feature of 2012 so far.

Upstream crude oil and naphtha volatility been most extreme this year with constant fluctuations leaving downstream industry de-stocking and re-stocking in its wake.

Three-digit swings on ethylene and propylene contract prices from one month to another have played havoc with downstream markets.

The ethylene contract gained €265/tonne ($344/tonne) from January to April, then lost €310/tonne through July, only to be hiked by €265/tonne in August and September. The relatively minor €10/tonne decrease from September to October has reinforced the view that the olefin derivative markets are crying out for some stability.

Meanwhile, propylene moved up €250/tonne from January to April, then down €296/tonne through until the end of July, then up again by €225/tonne for August and September combined. Again, as with ethylene, the latest October contract price settled with more modest adjustment of minus €20/tonne.

Players have lost patience with the volatility this year and and hope that this will not be such a feature throughout the fourth quarter.

"[The market] is anxious to have stability on pricing, that has happened with the [October] settlement," an integrated polymer producer said.

Among the topics that will certainly crop up over the EPCA weekend will be INEOS – its ethylene terminal at Antwerp, in Belgium, thought to be commissioning in the fourth quarter – and the recent announcement on its 15-year ethane sourcing agreement which will feed its cracker in Rafnes, Norway.

European olefins players will be asking themselves who will be next to help change the olefins landscape.

In the near term however, players will be making sure that they are all on the same page – as far as is possible - with regard to the supply and demand outlook for the remainder of the year.

They will be seeking answers to some questions.

Will the crackers currently on planned maintenances  - Borealis's Porvoo, Finland and LyondellBasell's Wesseling 6, Germany - restart on time? Will the Libyan cracker at Ras Lanuf finally come back online after an 18-month hiatus? How bad is demand really?

As usual, players warn against talking in too negative terms.

"Nobody expects healthy, the best we can expect is stability," a market observer said.

The olefins trader quoted earlier said: “There is a bit of a danger [of a self-fulfilling prophecy], but we have learned lessons, somehow we survive.”

The annual EPCA meeting runs from 6-10 October.

($1 = €0.77)

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By: Nel Weddle
+44 20 8652 3214

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