FocusTighter market for Europe ethylene, but for how long?

14 June 2013 13:44  [Source: ICIS news]

By Nel Weddle

LONDON (ICIS)--The European ethylene supply and demand balance has improved from April –  which was deemed the worst month for demand so far this year – but there are concerns that the situation will revert in July to how it was, market sources said on Friday.

The improvement in demand – notably for the key derivative polyethylene (PE) – was largely attributed to restocking and the perception that ethylene prices had bottomed out for the time being. It meant that cracker operators were able to increase cracker run rates from 75-80% on average to around 85%.

And so a market which had been very long – disappointingly so given the heavy cracker turnaround slate  - became more balanced to a point which some sources now even describe as tight.

"The market is really drying out," a producer said, adding that over just two weeks it had sold considerable spot tonnage and its crackers were running at full rates.

“Its getting more and more tight,” a second producer said, adding: “We are happy to be short.”

Sources, however, were careful not to overplay the improvement in the market.

"There is good demand and perhaps there is room for improving the numbers, but we are staying cautious – [we] need to avoid going over the top," the second producer said.

Sources on the buying side were quick to point out that the tighter balance was largely down to supply restrictions rather than a change in the underlying structural demand levels. 

One major consumer agreed that the balance had improved, and spot prices with it, but said it was more a question of timing.

"If prompt, they [sellers] will make you struggle, but they always leave a little space open," it said.

The view held by this major consumer and echoed among others was that sellers were balanced on paper but would inevitably find some need to sell to redress balances by the end of the month.

Another buying source said that its internal customers were of the opinion that derivative demand levels were not going to last for more than one or two weeks.

The PE market was losing momentum, some sources said. One large PE buyer said that its stocks were now quite high having restocked when prices were lower, while another said it was “not brave enough to fill my warehouses until the end of July”, given the uncertainty regarding demand levels in the summer period.

Sources said that the bearish sentiment was coming from an inevitable slowdown in activity in the summer months, even if not as pronounced perhaps as seen pre-2008 crisis – as well as the end of the spring cracker maintenance slate.

Much will hinge on the timely restart of Europe’s largest cracker – BASF’s 1.08 mn tonne/year ethylene cracker at Antwerp in Belgium, which is due to be restarted at the end of this month. Also, BP Refining & Petrochemicals (BPRP’s) 540,000 tonnes/year ethylene cracker at Gelsenkirchen in Germany is expected to be back online by mid-July.

Linda Naylor contributed to this article
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By: Nel Weddle
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