25 September 2013 16:02 [Source: ICIS news]
LONDON (ICIS)--The initial agreement made today for the European fourth-quarter methanol contract price – at €408/tonne ($551/tonne) – does not take into account the fundamentals of the global market, according to a supplier.
The supplier, which has offtake in the Middle East, a key producing region, and can therefore supply both Europe and the Asia Pacific market, said the proposed increase of €18/tonne does not address the fact that higher netbacks are available in other market, such as southeast Asia.
Although published prices in southeast Asia are lower than the proposed European contract price, the supplier said that once variables such as differing freight rates, duties and discounts are factored in, the southeast Asian market offers netbacks around $20/tonne higher than in Europe.
“I think the issue is producers who have settled have no global exposure, nor a high level view of global supply and demand,” said the supplier.
€408/tonne was agreed between a consumer and a European producer, with another European producer indicating it would follow the settlement.
Furthermore, €408/tonne remains below current European spot prices, when contractual discount is applied (assuming an average discount of 15%). Based on the average of last week’s ICIS assessed spot price range, the spread is almost $30/tonne.
If the initial settlement of €408/tonne becomes confirmed, the supplier said it and other global suppliers would likely either reduce the size of discount offered to contractual customers in 2014, or reduce the volume of material offered through contracts in 2014, thereby forcing consumers to purchase in the spot market.
The European spot market primarily comprises suppliers and traders, with net consumers taking most of their supply through contracts.
The European contract price for methanol is settled on an FOB (free on board) Rotterdam basis.
($1 = €0.74)
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