06 September 2013 09:57 [Source: ICB]
Increasing feedstock costs, volatility, and risk of further hikes complicate the European monthly settlement
The European ethylene monthly contract for September has been fully confirmed at €1,260/tonne ($1,658/tonne), up by €50/tonne from August, following support from a second seller on 3 September.
One of the settling buyers said it was a good compromise between the feed increase and the downstream situation. The second settling seller said: "The key thing was that we needed merchant buying support and broad acceptance."
The second seller considered the increase of €50/tonne a reasonable number, taking into account the average feedstock increase over the last month, plus a risk premium - linked to recent heightened upstream volatility.
The feeling among settling parties was that an agreement needed to be reached as it was already 3 September. One of the sellers said "the uncertainty is there to stay", and there was a need to monitor the situation during September and take action in October, if necessary. The second settling seller said a larger increase was needed for the September propylene monthly contract price than for ethylene - taking into account the gap between the two. The settlement is agreed on a FD (free delivered) NWE (northwest European) basis.
Meanwhile, the European propylene contract settlement for September has been fully confirmed at €1,150/tonne ($1,513/tonne), up by €60/tonne from August, following further buyer support late on 2 September. The initial propylene settlement, which is on an FD (free delivered) NWE (northwest Europe) basis.
The settling sellers considered the settlement a compromise, adding that cracker margins were already thin and the spike in upstream costs over the past week needed to be taken into account.
One of the settling producers said that a three-digit price hike was necessary on the back of the heightened feed pressure over the last week, but some middle ground was reached for the sake of the industry so that a number is out there.
One of the settling buyers said that "we feel it is important that there is a settlement, and took responsibility. We were aiming lower for a long time but needed to compromise."
The delay to the propylene settlement is thought to be almost unprecedented because monthly olefin contracts normally settle at the latest by the end of the preceding month.
One buyer, who was not involved in the settlement process, considered the level of increase larger than expected, but still acceptable. One non-integrated consumer, however, was dissatisfied with the €60/tonne rise, which it considered to be too high. It said it had been prepared to pay an average feedstock increase plus slightly more in view of the recent upstream feedstock volatility, but was not prepared to pay more than €55/tonne - saying feedstock costs had cooled slightly since the higher levels seen last week.
It said it considered that taking a point-on-point feedstock comparison (feedstock costs at the time of settling) rather than an average feedstock cost change over the last month to be an "opportunistic" viewpoint.
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