Europe ethylene, propylene August CP talks complicated by C4 weakness

26 July 2013 14:12  [Source: ICIS news]

LONDON (ICIS)--August ethylene and propylene contract price (CP) discussions got under way this week with strong views and more focus on co-product performance and outlook – notably that of butadiene – than in previous months, participants said on Friday.

Some consumers have been frustrated that ethylene and propylene contract sellers appeared to be trying to offset the impact of the extremely soft butadiene (or C4) market on cracker margins by targeting higher-than-expected increments.

Ethylene and propylene CPs for August are widely expected to settle higher, driven primarily by firmer naphtha feedstock. Demand has been fairly healthy in July and the outlook so far for August is “promising”, according to producers.

Meanwhile, butadiene (BD) prices are under extreme negative pressure from poor global demand and lengthy supply. This has been especially hard for Europe, which relies on export opportunities to reduce structural length. Spot prices are below naphtha costs and a sizeable decrease is expected for August – the July contract fell by €250/tonne (€188/tonne) in an attempt to align more closely to the US and Asian markets.

“The C4 chain is getting into the discussions,” said a major olefins consumer.

“I do not care how much total margin [name of producer] has, but I do care how much I have to pay for the [volume] of ethylene,” a second major consumer said.

BD consumers insist that there is no room for a moderate adjustment on the August BD CP as cheap BD exported to Asia returns to Europe in the form of cheap derivative, destroying not only export but also domestic market share.

One BD consumer said that because of the disconnect between ethylene and BD and as both producers and consumers of BD were victims of ethylene-driven higher cracker run-rates, some compensation could come through ethylene.

“At times BD was short and ethylene possibly long, BD supported olefins by credit... now we may need that support back,” the BD consumer said.

Ethylene and propylene consumers disagreed.

"Ethylene and propylene do not have to pay for [the] lousy C4 market. Did [the] C2 and C3 [contract price] drop down when BD was at €3,000/tonne?” a third major consumer said.

The second major consumer said that, as an ethylene and propylene consumer, “we understand and accept the feed issues” but added that it should not be expected to pick up the bill for BD.

Most producers did not accept the view that they were pushing to compensate for BD.

“It's not fair to forward the BD [problems] to ethylene and propylene,” a major producer said, adding that, if anything, propylene should carry more weight in the margin distribution.

“We all know the problems the margin is having with the C4s. It's difficult to use that as a reason to increase, but it gives us the resolve to try and get the prices we want,” a second major producer said.

“While we talk about CPs, what's happening on BD and benzene is in the back of our minds, and you will negotiate for the last euro increase because you know you will miss some margins,” said a third producer.

However, it stressed that “we negotiate in line with the fundamentals for the specific product. It is not fair to do otherwise”.

Other producers were non-committal.

“It’s a combination of everything, demand is really strong, cost-picture is the driver, but then by-products are considered," said a fourth olefins producer.

“We have to earn margin on ethylene and propylene, we are not earning on C4,” a fifth olefins producer said.

Ethylene, propylene and BD August CPs are unlikely to settle before the weekend, sources said on Friday. This was because either the gap between buyers and sellers was still too large and/or players preferred to wait until the very end of the month to better understand feedstock developments and outlook.

($1 = €0.75)

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By: Nel Weddle
+44 20 8652 3214



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