Europe September ethylene, propylene contracts still to be agreed

30 August 2013 17:58  [Source: ICIS news]

LONDON (ICIS)--The European September ethylene and propylene contract settlements are unlikely to be agreed by the end of the working month as buy and sell positions struggle to align in view of heightened upstream volatility, market players said on Friday.

Manufacturers have been holding out for increases of €80-100/tonne ($105-132/tonne) because of spiking upstream costs amid already low cracker margins.

One manufacturer said it would remain firm on its target of plus €80-90/tonne as a minimum, adding it would not make sense economically to continue to produce otherwise.

Buying sources, however, were equally as adamant to resist any price increases above €50/tonne for the sake of downstream affordability in a market where there is already practically non-existent margins for certain derivatives and fragile underlying demand.

One propylene buyer considered that hikes of €40-50/tonne would be a compromise, taking into account the modest average feedstock price rise and its acceptance to be slightly more to factor in some upstream volatility over this week.

It added the uncertainty as to whether the spike in upstream costs would continue or was more of a temporary situation was stalling the settlement process.

One ethylene consumer said non-integrated buyers are prepared to pay plus €30-40/tonne, but is aware that integrated customers are able to pay slightly more.

It added that derivatives have been struggling with European ethylene costs, which are the highest out of all the regions. It said that it had been offered a price of plus €50/tonne but had refused.

Some players are unhappy that the monthly discipline has not been adhered to and derivatives remain in limbo in terms of price and volume nominations.

However, the general feeling is that sources prefer to take their time and further monitor upstream developments so that they have a better grounding for the September contract price.

“Market discipline is one thing, it needs to be the right price,” said one customer

A second customer said there is always the possibility of a catch-up to be factored into the October settlement, if upstream costs were to remain high. However, there was insufficient support for this view, at least from sellers this week.

The European August contract price was agreed at €1,210/tonne FD (free delivered) NWE (northwest Europe) for ethylene and €1,090/tonne FD NWE for propylene.

($1 = €0.76)

By: Heidi Finch
+44 20 8652 3214

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