Price and market trends: Three-month settlement for US ethylene contracts looks likely

21 June 2013 09:59  [Source: ICB]

First three-month contract settlement since 2009 could help narrow the gap between contract and spot prices

US ethylene contracts appear set for a three-month settlement, sources said on 11 June.

US ethylene contracts are not expected to reach a settlement until July, when April, May and June contracts will be finalised.

If a three-month settlement is reached, it would be the first for the market since July, August and September of 2009.

"The issue is that cash costs for ethylene have fallen so much," a market source said. "Because of this, the contract/spot relationship has been skewed."

Sources said that producers are looking to narrow the gap between spot and contract prices by keeping contract prices steady or raising them.

US March ethylene contracts settled at 48 cents/lb ($1,058/tonne, €794/tonne), as did February and January contracts.

However, spot prices started declining in April and continued through May. This led buyers to push for a 1 cent/lb decrease in April and May contracts, which some producers are continuing to fight against.

Some market sources said producers are concerned spot ethylene prices will fall below contract values in the summer as supply lengthens. This would return the market to historical norms, but would be the first time since December 2011 that spot ethylene fell below contract ethylene.

As a result, producers are looking to keep contract prices higher, as the majority of their sales volumes come from contract material.

Buyers are also arguing that feedstock ethane costs have remained cheap, allowing ethylene producers to experience margins in the mid-40s to mid-50s cents/lb level for most of 2013.

"The downstream guys are making 10-20 cents/lb of margin at best," the market source said. "They want more fairness with the margins."

Buyers are arguing that those margins should be passed down in order to make key derivatives such as polyethylene (PE) and polyvinyl chloride (PVC) more competitive in the global market.

Sellers in those derivative markets say they are having difficulty moving material overseas.

Major US producers of ethylene include Chevron Phillips Chemical, ExxonMobil, INEOS, LyondellBasell and Shell Chemical. Major buyers include Axiall, Dow Chemical, Occidental Chemical and Total.

By: John Dietrich

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