Europe C2, C3 markets quiet, steady as CP speculation grows

Nel Weddle

19-Sep-2014

Focus article by Nel Weddle

LONDON (ICIS)–European ethylene and propylene markets are described as steady and relatively quiet as speculation regarding the outcome of next month’s contract price (CP) begins to build, market sources said on Friday.

The ethylene market is the slightly more active of the two given that discussions are ongoing with regard to export possibilities following a couple of recent fixtures from Europe to Asia – notably India and Indonesia.

However, opinions regarding the health of the ethylene market are mixed.

The fact that Europe has begun exporting again after a two-three month hiatus has leant a bearish tone to the market according to some sources, who question whether demand has really picked up after the slow-down in August.

Export prices were done at around $1,150-1,170/tonne FOB (free on board) NWE (northwest Europe) when fixed in early September but prices are suggested to have softened into the low $1,100s/tonne since then.

Some weakness in pipeline prices – softening from the mid €900s/tonne at the beginning of the month to €910/tonne FD (free delivered) NWE currently – has also fuelled bearish sentiment.

However, since some of the sales are said to have been because of an unplanned issue at one or more derivative units, the impact on the market could be seen as being temporary.

On the other side of the fence, some players describe the export deals as being opportunistic rather than absolutely necessary – solving any imbalance issues at a not-so-bad price.

“[If] coastal crackers are seeing an opportunity above cost price, then they are taking it,” a producer said.

“Given the limitations that we had… the money is not too bad and it solved our problem,” a second producer said.

The first producer said the ethylene market was long. The turnaround season had started but this meant that systems were generally pretty full as players had made arrangements to bridge the cracker shut downs.

“Lower feed has increased the available marginal production so rather than trim crackers, [they are] finding export options,” a source said, adding “there is no fundamental shift in demand.”

There is more of a consensus on the propylene side. Most sources talk of a stable, pretty well balanced market.

“It’s very quiet on propylene, I don’t see any spot requirements,” a trader said.

“It’s generally well-balanced so no needs either side,” the trader added.

“Despite the start of the cracker turnaround period, there is no shortage of propylene,” a buyer said, adding that it had been approached by various parties looking to sell some volumes.

Spot polymer grade propylene (PGP) prices were again talked at CP minus 4% but no deals have been heard this week.

Propylene demand is described as buoyant as the stronger dollar has stepped up derivative export efforts – European propylene derivatives were already in more competitive position cost-wise to their counterparts in the US anyway.

Some sources attributed the quiet markets to the fact that players were busy doing other things, such as finalising 2015 budgets and plans, preparing for EPCA discussions and so on. Others said speculation about October’s contract price would also be playing its part.

While there has already been some mention of decreases largely based on the downturn in the crude oil market, in fact the September average naphtha price to date is about €5/tonne higher than the average for August.

A couple of sources have suggested that therefore, a rollover is a likely outcome for both ethylene and propylene but much will depend on the upstream movements over the next few days.

The October CP discussions should get underway next week.

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