INSIGHT: Late Europe C3 Sept settlement worries waiting derivatives

04 September 2013 16:34  [Source: ICIS news]

By Helena Strathearn

LONDON (ICIS)--Late settlement of the monthly propylene (C3) contract for September in Europe made for a difficult start to the month for those in the derivatives markets.

Its knock-on effect for downstream players, as they were unable to settle C3-influenced contracts, proved challenging.

A number of these contracts use formulas based on the relevant month’s propylene price.

“Our customers don't know their costs and this even goes down to their downstream products,” one trader said ahead of the settlement on Monday.

“Our customers very rarely confirm our C3-based contract volumes if they don't know the price yet, it is very challenging.”

Another acrylates trader said: “It's difficult to start the new month without the propylene settlement. Customers are expecting the new prices to agree new settlements. Without it, it’s like walking in the fog.”

This month’s propylene contract settled later than normal, in the afternoon of 2 September. It typically settles by the end of the preceding month.

The European September propylene contract was finalised at €1,150/tonne ($1,513/tonne) FD (free delivered) NWE (northwest Europe), up by €60/tonne from August. The settling sellers considered the settlement “a compromise”, taking into account already-thin cracker margins and the recent spike in upstream costs.

Middle ground was reached for the sake of the industry so that a number was available.

While acrylates producers are aiming to increase prices – hikes of €40/tonne are being cited – to cover feedstock costs, there is already some resistance from the buying side.

September butyl acrylate (butyl-A) prices have the potential to rise on limited supply as BASF’s sales control is set to remain in place until the end of the month, and demand remains steady. But buyers in the sector intend to limit any hikes on improved supply conditions versus July and August.

Surplus methyl acrylate (methyl-A) and ethyl acrylate (ethyl-A) volumes are also expected to put downward pressure on September acrylate contract negotiations.

With demand for these products steady at a low level, suppliers are looking to maintain market share. Methyl-A and ethyl-A spot prices are unlikely to see immediate price rises irrespective of the raw material development.

The key word for so many in the petrochemical industry this year is "margins". Players along the supply chain are trying to lift returns that have been under pressure since the middle of 2012.

According to those in the acrylic acid (AA) sector, prices are likely to firm on the back of higher propylene cost, and steady demand – most notably for butyl-A, which is used in coatings and adhesives.

Demand is reasonably good for the time of year. August demand was only slightly below the comparatively healthy offtake seen in July, despite summer holiday absences, as warm weather supported end-use consumption. An acrylates producer said it would "make hay while the sun shone".

Many sectors saw the opportunity to take action while the situation was favourable, but volumes have generally not been sufficient to make up for those lost earlier in the year when buying interest was sluggish.

Polypropylene (PP) buyers in Europe are concerned that September hikes could lead to a crash in subsequent months, and several said on Friday that they are keeping a close eye on stock.

Polymer buyers are reluctant to hold too much high-priced inventory in an uncertain situation, and buyers argue that naphtha prices could drop just as quickly as they have risen. 

AA contract prices for August increased by €20/tonne from July to €1,850-1,870/tonne FD NWE, after the August feedstock propylene price settled €50/tonne higher.

August methyl-A and ethyl-A prices were at €1,760-1,820/tonne FD NWE and €1,890-1,910/tonne FD NWE respectively. Butyl-A prices in August were at €1,880-1,910/tonne FD NWE, while 2-ethyl hexyl acrylate (2-EHA) contract prices settled at €2,080-2,100/tonne FD NWE.

September acetone contract prices are now also expected to rise on propylene costs. It remains to be seen how these costs are then passed further on downstream into the methyl methacrylate (MMA) market, where production margins have been squeezed amid wider macroeconomic uncertainty.

The August acetone MMA contract was agreed at €908/tonne FD NWE, while MMA contracts for the same month rolled over at €1,810-1,840/tonne FD NWE.

Players are trying to get a clear picture for the month, but most feel it is a little bit early to come to any conclusions.

Initial feedback indicates the majority see the propylene settlement as “on the high side” and there is a sense that some are doubtful that it will be adequately passed through downstream. “Customers are not willing to take increases in this range, so it will be problematic to pass this through,” one seller said.

Market participants are gradually making their way back to work after summer holidays. The outlook for supply, demand and pricing - yet again - is unclear.

($1 = €0.76)

Additional reporting from Heidi Finch and Linda Naylor

Read Paul Hodges’ Chemicals and the Economy blog
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By: Helena Strathearn
+44 208 652 3214

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