Europe EO conversion fees rise for 2013 on expected tight supply

18 January 2013 23:59  [Source: ICIS news]

LONDON (ICIS)--January contract prices for European ethylene oxide (EO) were assessed by ICIS on Friday at an increase of €25/tonne for northwest Europe and €40/tonne for the Mediterranean, based on a rise in conversion fees for 2013.

Contract prices were assessed at €1,388–1,555/tonne ($1,851–2,073/tonne) FD (free delivered) NWE (northwest Europe) and €1,443–1,600/tonne ($1,924–2,133/tonne) FD MED (Mediterranean).

Annual conversion fees, or adders, increased for a significant proportion of European EO contracts with effect from the start of the year, market sources said.

The size of the increases varied, but plus €20–30/tonne was understood to be representative for deliveries in northwest Europe. Greater increases were heard for southern Europe, reflecting higher logistical costs and less competition.

Larger and smaller increases were also heard, as were agreements to keep conversion fees stable.

Not all contracts were due for renegotiation this year, as many conversion fees are fixed for more than one year at a time.

The rollover of the January ethylene contract at €1,275/tonne FD NWE means that the formula-based element for EO January contract prices was unchanged.

Any contract prices indexed to ethylene for which conversion fees were not renegotiated therefore rolled over for January.

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

While the EO market has been largely balanced in the past few months, supply is expected to tighten this year as the result of a heavy slate of planned turnarounds at producers' plants.

Good demand from the surfactant and agrochemical sectors continues to help compensate for weakness in the automotive and construction industries.

($1 = €0.75)

By: Samuel Weatherlake
+44 20 8652 3214

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