Price and market trends: US ethylene contracts settle for three months

12 July 2013 09:31  [Source: ICB]

US prices decrease by 5.2% for April, May and June amid strong disagreements; buyers say prices needed to fall

US ethylene contracts have reached a full settlement for April, May and June, decreasing by about 5.2%, buyers and producers confirmed on 3 July.

The three-month settlement puts April ethylene contracts at 47.25 cents/lb ($1,042/tonne, €802/tonne), May ethylene at 46.25 cents/lb and June ethylene at 45.50 cents/lb.

The combined settlements put US ethylene contracts down by 2.5 cents/lb from March's level of 48 cents/lb.

CALCULATIONS
The three-month settlement was the first since July, August and September of 2009 and was fuelled by strong disagreements regarding how contracts should be calculated.

Market sources said producers pushed to close the gap between spot price levels and contract levels, wanting to tie contracts to average spot prices for each month because they believe spot deals are a closer representation of the market.

"Spot prices have been much higher than contracts for a while now," a producer said. "The gap needs to close."

Although spot prices fell by 7-8 cents/lb since the March settlement, they ended June in the 56-57 cents/lb level.

Buyers argued that basing contract ethylene on spot deals is unfair, as many transactions are among producers who are covering shortfalls or outages.

"Producers definitely have an interest in getting a deal done for a few million pounds at a high level," a buyer said.

"Then they can use it to sell their several hundred million pounds for the contract."

Buyers also said that US ethylene contracts needed to come down in order to help with margins on downstream products such as polyethylene (PE) and polyvinyl chloride (PVC).

Market sources said that US ethylene producers are seeing margins of 30-40 cents/lb, while downstream players are seeing closer to 5-10 cents/lb. The higher ethylene has also hurt exports of ethylene derivatives, sources said, by making them uncompetitive in overseas markets.

"Current spot prices don't allow for exports unless you're fully integrated," a buyer said. "The spot price is right on the edge of profitability."

Market players said they expect the debate to continue for July settlements.

"It's too early to tell on July, but the same issues will be debated," the producer said.

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

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


By: John Dietrich
713-525-2600



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