23 August 2013 09:35 [Source: ICB]
"It's been a good August so far - not a typical August, I would say," an olefins trader said.
Producers and consumers alike said there was little evidence of the usual European "summer hole" although some consumers cautioned that, because of holidays, the total demand picture may not become clear until late in the month, particularly for those with an emphasis on export trade.
"Demand is not bad," a major consumer said, but it added that, while volumes were not low, margins were still problematic as they were under pressure from cheaper Asian prices. "Asian prices are low and it's tending to drive pricing down," it said.
Sources said that the markets were firm and stable, some earlier supply length having dissipated.
"Generally, [the] markets are balanced overall, [because of] a better performance of derivatives on all chains - it's a bit of a surprise," the olefins trader said.
"It's not a runaway shortage, but it's certainly not as long as it was - it's incredibly hard to keep up with demand," a producer said. "The industry probably did underestimate the potential situation in August - it's down to low inventories and, if you look at real demand downstream, it hasn't really changed."
After a poor first quarter, and with demand only beginning to run at near-normal levels again from May, sources said it was no surprise that perhaps players had been over-cautious in their summertime planning.
LACK OF FLEXIBILITY
Inventories had been maintained at low levels all year, which lent little flexibility to the market. This - in addition to supply constraints due to unplanned production hitches, and heat restrictions ahead of the start of the autumn turnaround season - has put some producers into buying mode.
"My customers and my customers' customers can see a firming upstream market," the producer said.
Sources said the news that the eurozone has emerged from recession would also be bolstering market sentiment. This could lead to higher, and much healthier, inventory levels being maintained than has been seen in a long while.
As a result of the improved suppy and demand balances, spot ethylene and propylene prices have firmed.
These higher spot numbers were "60% supply-, 40% demand-driven," the olefins trader said.
Ethylene pipeline prices were last assessed at about €1,100/tonne ($1,467/tonne) FD (free delivered) NWE (northwest Europe) from about €1,000/tonne in June.
The spot polymer grade propylene discount to the August contract price (CP) has been disappearing over the past couple of weeks to mid-August from 5-7% to 2-4%, with a couple of players already talking of business done at CP flat.
The ethylene CP settled for August at €1,210/tonne, up by €40/tonne, while the propylene CP went up by €50/tonne to €1,090/tonne. The contracts are settled on a FD NWE basis.
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