22 November 2013 15:10 [Source: ICIS news]
LONDON (ICIS)--The European methanol market’s practice of settling contract prices on a quarterly basic is archaic, according to a global supplier on Friday.
When compared with the greater price volatility in the US and Asian markets, the European market is increasingly not in line with global supply and demand fundamentals, the suppler said.
“[With respect to] the volatility in other regions, the quarterly contract is becoming archaic,” the supplier said.
The supplier added that the inability to more frequently adjust the contract price to keep it in line with fundamentals increases the level of posturing in the spot market in the run-up to each quarterly settlement.
The vast majority of European methanol is supplied through contracts, with consumers having little or no exposure to the spot market. Spot trading is dominated by traders taking positions, and by producers and suppliers that often act as buyers, supplementing their own supply chains.
In the US, contract prices are settled monthly, while in Asia most material is traded on a spot basis, with one major supplier operating via monthly contracts.
Opinion in the European market is split, with some favouring the quarterly setup while others have said they would prefer to switch to monthly contracts.
Some consumers said they prefer quarterly contracts because of the stability they offer, and because their own customers that buy methanol derivatives often operate with longer-term pricing structures.
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