Europe MEG market divided on March contract rise – buyers

Focus article by Caroline Murray

LONDON (ICIS)–The European monoethylene glycol (MEG) March contract price remains a contentious matter as views on how high the increase should be continues to differ between buyers and sellers, buyers said on Wednesday.

Differing views seem to be partly based on which data points are being used, and whether or not they are consistent with those used in previous months’ contract negotiations.

Sellers have argued in the past that current month price conditions as opposed to the previous months’ dynamics have been weighted in negotiations when prices were falling, so similar tactics may be used in a firming environment.

Producers are keen to push the upstream ethylene price increase onto March MEG contracts, in addition to reflecting the tight supply conditions.

They are targeting a “substantial increase,” compared to February’s €760/tonne FD (free delivered) NWE (northwest Europe) settlement, a source said.

A €100/tonne increase in upstream ethylene calculates back to €60/tonne on MEG.

Buyers said even the ethylene pass-through is asking too much, considering ethylene was not passed through fully when prices were falling.

“When C2 [ethylene] decreases were not passed though 100%, it will be illogical for sellers to ask for [the] full increase,” a buyer said.

“A 50% average was passed on in the last two months… Considering the market is tight, we could discuss around €40/tonne,” a second buyer said.

Sources warned that last week’s surge in spot prices may have been a panicked reaction to an overheated environment.

“… suddenly there was a jump in spot in Europe, China also went up immediately after the Chinese New Year holiday, so maybe some people were panic driven,” the second buyer said.

Nevertheless, even buyers acknowledge that spot has been tight and sellers have the upper hand.

Discussions are yet to begin in earnest, so comments are somewhat premature at this stage.

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