US April, May ethylene contracts could settle at drop or rollover

04 June 2013 16:23  [Source: ICIS news]

US April, May ethylene contracts could settle at dropHOUSTON (ICIS)--US April-May ethylene contracts are expected to settle at a decline or a rollover, sources said on Tuesday.

US ethylene contracts for April were not settled during the typical timeframe, leading to expectations of a double-month settlement for April and May.

Typically, US ethylene contracts settle at the start of the month for the previous month. Double-month settlements are uncommon but not rare.

Market sources said the divide between producers and buyers in April was wide, with producers favoring a rollover and buyers a decline of 1 cent/lb ($22/tonne, €17/tonne) or slightly less.

Producers argued that spot prices have been above 50 cents/lb for all of 2013, yet contracts have been at 48 cents/lb for all of 2013. Producers said that contract prices should move closer to spot levels.

Buyers said that feedstock ethane costs have been cheap and that producers need to share their increasing margins with downstream markets.

Although US ethane prices have gone up by roughly 1 cent/lb since March, ethane prices remain far cheaper than naphtha prices.

However, buyers said that ethylene producers are still pricing material on a naphtha basis despite ethane being the dominant feedstock.

Additionally, April-May average ethylene spot prices have shed almost 7 cents/lb since March, tracking lower-than-expected demand.

Market sources said that the weaker US construction industry has dampened sales of the two biggest ethylene derivatives, polyethylene (PE) and polyvinyl chloride (PVC).

The weaker spot prices should push down on contract prices and have come despite several planned and unplanned cracker outages during the April-May timeframe.

Major ethylene producers include Chevron Phillips Chemical, ExxonMobil, INEOS, LyondellBasell and Shell Chemical.

Major buyers include Axiall, Dow Chemical, Occidental Chemical and Total.

($1 = €0.76)

By: John Dietrich

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