Few surprises expected for olefins December contracts

23 November 2012 13:37  [Source: ICIS news]

LONDON (ICIS)--European ethylene and propylene December contract price (CP) discussions are starting to take place, but no surprise settlements are expected given the year-end timing and the reasonably stable upstream market, market sources said on Friday.

In both cases, most sources are anticipating a decrease similar to those seen in October and November – in the order of €10-20/tonne ($13-26/tonne) – reflecting soft supply and demand fundamentals. A few are also focusing on a decrease of €20-40/tonne, particularly on propylene, which is generally regarded as the longer of the two.

Some producers said that a rollover would not be unrealistic because cracker margins need to improve. One or two producers even said a small increase would be justifiable, but others said that naphtha would have to show a more significant upside for this to be the case. Over the past few weeks, naphtha prices have been relatively stable compared with previous months and have been moving within a small band.

According to ICIS data, the average euro-based naphtha price in October was €737/tonne CIF (cost, insurance & freight) NWE (northwest Europe), while the average for November to date is €734/tonne.

Although many ethylene and propylene derivative producers would like to see greater discounts applied to “correct” contract prices and allow for better competitiveness in global markets, there is still the widely held view that stability or near-stability is the best option overall, and that a  larger decrease would only “open the floodgates” and put already weak derivative margins in a more precarious position. Some said that few would be keen to see stock devalued further in the run-up to the year-end

“It will settle somewhere between a correction and a rollover,” a producer said, seemingly acknowledging that derivative markets need more substantial cost relief.

However, several sources feel the year-end is exactly the right time to correct prices and bring them more into line with global prices – demand is low, inventories are already reduced and will be more likely to stimulate demand and provide a boost in the new year.

“We need the kind of pricing that will boost demand” a major derivatives producer said. It added that US propylene prices were still “well below €1,000/tonne” even taking into account the recent 4cts/lb increase for the November CP.

A second producer, echoing the views of many, said “it’s a challenging environment” and sources would continue to err on the side of caution.

November ethylene settled at €1,275/tonne, down €15/tonne, and November propylene settled down by €20/tonne at €1,120/tonne. The contracts are settled on a free delivered (FD) NWE basis.

($1 = €0.78)

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By: Nel Weddle
+44 20 8652 3214

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