FocusNo big changes expected for Europe June ethylene, propylene

24 May 2013 13:46  [Source: ICIS news]

By Nel Weddle

LONDON (ICIS)--Any adjustment in the European ethylene and propylene contract prices for June is likely to be less than that seen for the May settlements as a slightly firmer but more volatile upstream naphtha market is mitigated by ongoing structurally soft demand, market sources said on Friday.

“We expect it to be a relatively stable contract price,” an integrated producer said.

Naphtha cargo prices rose steadily through the month primarily because of good demand from the gasoline sector. Although prices have been on a downtrend since the beginning of this week, overall values are higher than in the previous month and cracker margins have fallen.

ICIS analysis on Monday indicated that contract cracker margins were back to December 2012 levels having fallen for five consecutive weeks.

Demand for both ethylene and propylene remains soft but May has seen offtake and pricing improve at least for the key derivatives polyethylene (PE) and polypropylene (PP).

Sources attribute this largely to restocking following a pretty dismal April and buyers having the confidence to build a little stock amid a perception that the market for now has bottomed out.

In general, a rollover or a small adjustment of €10-20/tonne ($13-26/tonne) on either side was expected by sources, depending on which side of the fence they were positioned.

“[We are] happily surprised to see that demand is increasing, people realise that we touch the bottom and [derivative] inventories have been low since the beginning of the year,” a second integrated producer said.

The producer added it expected June to also be a “reasonably good” month and because of this and a firmer upstream market, “there is no reason for a decrease, maybe [we] even see an increase.”

“Polymers need support from raw materials, if they want to maintain their recent increases,” the producer said.

Meanwhile, a consumer said that while its business was not “totally bad”; it said it was struggling with margins rather than with sales volumes. This view was widely echoed by other non-polymer derivative producers.

“There is room for a small increase from the naphtha [perspective] but does it make sense to have a small increase? Will it support downstream?” a major consumer added.

A second consumer said “even if costs are a bit higher, cracker margins can absorb it” and that its expectation was for a rollover.

“I doubt a decrease is possible on either [ethylene or propylene] in this volatile environment,” a buying source said, also pointing out the global economic data published this week which “is up and down like a yoyo”.

But it added that while earlier an increase might have been possible, softer naphtha values would centre on a rollover – at least for ethylene.

Ethylene is still regarded as being fundamentally long despite the improvement in demand. Propylene on the other hand is tighter having been impacted more by recent and ongoing unplanned supply constraints.

“A firm double rollover seems obvious today, [but] let's see on Monday," a buying source said, alluding to the ever-changing feedstock goalposts.

The May ethylene contract price settled down by €100/tonne at €1,165/tonne FD (free delivered) northwest (NWE), while propylene settled at €1,025/tonne FD NWE, down by €80/tonne.

($1 = €0.77)

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By: Nel Weddle
+44 20 8652 3214

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