29 January 2013 16:25 [Source: ICIS news]
LONDON (ICIS)--The European ethylene and propylene contract prices for February have been established at €1,275/tonne ($1,723/tonne) and €1,100/tonne respectively, and the settlements encompass a broad spectrum of derivative sectors, market sources said on Tuesday.
The ethylene settlement, which came in late on 28 January, marks the third consecutive rollover at €1,275/tonne. The initial settlement was between a major olefins producer and two of its customers, one non-integrated and the other integrated. A second settlement quickly followed, confirmed by a second major olefins producer and another two non-integrated buyers.
A rollover was widely expected. Sources said the current supply and demand situation would indicate an increase but on the other hand naphtha was lower-to-flat, so in essense one offset the other.
“It’s a combination of both elements,” the first major olefins producer said.
A couple of producers had targeted an increase based on the supply issues but accepted the outcome.
“In my opinion, ethylene is short and will be shorter,” one of the producers said referring to the heavy cracker maintenance schedule which will get under way towards the end of the quarter.
Separately, propylene gained €10/tonne to settle at €1,100/tonne on Tuesday morning. The contract price was confirmed by two major producers, and three consumers covering the polypropylene (PP), acrylonitrile (ACN), phenol, propylene oxide (PO) and polyurethane sectors.
“[The settlement was] directionally expected, [but the] increase limited due to derivative market weakness," a market observer said.
Propylene’s contract price discussions had generally been expected to be a rather drawn out affair because of some opposing views regarding the relevance of the supply constraints currently plaguing the market following the outage at Naphtachimie’s cracker in Lavera, France.
A couple of sources had targeted a decrease or at the very least a rollover based solely on naphtha developments. In their view, the supply and demand situation had not played any significant part in most of 2012’s contract price discussions and still should not now.
However, most sources agreed supply constraints were having some impact as seen by the upwards correction on spot prices through January. Sources also agreed this impact was likely to endure given the latest reports regarding the Lavera cracker downtime coinciding with planned maintenances.
Overall, market sentiment is cautious and structural demand levels are still uncertain – both PE and PP markets are described as fragile. Few wish to see a return to the extreme contract price adjustments seen in the first half of 2012 which might just put a halt to any potential recovery.
“I will be pushing rational incremental price rises,” one of the propylene settling producers said.
“It's more about stability,” a trader said.
“Steady price increases will last longer,” a producer said.
($1 = €0.74)
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