Europe ethylene oxide 2013 adder set to rise by up to €100/tonne

22 November 2012 16:33  [Source: ICIS news]

LONDON (ICIS)--The conversion fee, or adder, for purified ethylene oxide (EO) produced in Europe is set to rise for 2013, in some cases by as much as €100/tonne ($128/tonne), a major buyer said on Thursday.

The adder is the amount that European producers charge to refine crude EO so that it can be sold to outside consumers. Conversion fees for 2012 in northwest Europe were heard in the mid-€200s/tonne.

The majority of crude EO is used internally by producers to manufacture ethylene glycol for polyesters and antifreeze.

Purified EO is used to make products such as glycol ethers, ethanolamines, ethoxylates, and polyols. Downstream applications include polyurethanes, surfactants, agrochemicals, solvents, and paint.

The EO buyer said it had heard from some market participants that their conversion fees would increase by €75-100/tonne with effect from January 2013.

The buyer said its own contracts would not be affected because they were not due for renegotiation, but noted that its adder had increased for 2012. The buyer said that larger conversion fees had been due for some time.

Other sources confirmed that their conversion fees were increasing for 2013, but indicated that smaller increases would be applied in most cases.

One producer said it was targeting a rise of €30/tonne, while another was seeking increases of €30–50/tonne.

A third producer said it was targeting plus €20–30/tonne for northwest Europe and plus €30–40/tonne for southern Europe.

The purified EO market is expected to be tighter in 2013 because producers have scheduled a series of maintenance turnarounds at their plants.

Buyers confirmed that targeted increases were larger in southern Europe, which they said was due to less competition for market share and higher logistical costs compared with northwest Europe.

One buyer said that its suppliers are seeking to increase fees by €20-30/tonne in northwest Europe, and by €60-70/tonne in southern Europe.

The buyer suggested that producers’ initiatives had more to do with perceived product value than actual cost increases, except in the case of contracts where terms were not renegotiated annually.

The buyer emphasised it could not be taken for granted that producers' efforts would be successful.

Another buyer said that higher conversion fees had been applied to fourth-quarter 2012 contracts, which saw an increase of €25–30/tonne, bringing its adder into the high €200s/tonne. The source said that its suppliers were trying to push the 2013 adder above €300/tonne, but added this was not a realistic objective.

A third buyer said it had managed to secure a lower 2013 conversion fee by broadening its range of suppliers.

The majority of contracts are formula-based, with monthly price movement comprising 80–85% of the change in the monthly ethylene price.

European EO contract prices for November were assessed down by €12/tonne from October, based on the €15/tonne fall in the November ethylene contract.

November EO contract prices were assessed by ICIS at €1,363–1,530/tonne FD (free delivered) NWE (northwest Europe) and €1,403–1,560/tonne FD MED (Mediterranean).

Demand from many downstream sectors has been lacklustre throughout 2012 on account of macroeconomic weakness. Applications that are heavily dependent on the automotive and construction industries have been hit particularly hard.

By contrast, surfactants consumption has proven highly resilient to the economic downturn, while demand from the agrochemicals industry is at its seasonal peak during the fourth quarter.

Many buyers have followed a hand-to-mouth purchasing strategy this year, hoping to mitigate the impact of the large ethylene-driven price swings that have characterised the EO market in recent months.

The market is balanced overall, and a seasonal slowdown in activity is expected in the weeks leading up to the end-of-year holiday.

European EO producers include Shell, INEOS Oxide, BASF, Clariant, Sasol, Dow Chemical, IQA, PKN Orlen and AkzoNobel.

($1 = €0.78)

By: Samuel Weatherlake
+44 20 8652 3214

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