Low Rhine levels plunge Europe olefins market into logistical chaos

Author: Katherine Sale

2018/10/29

Dry Rivers, Kaub, Germany - 24 Oct 2018

LONDON (ICIS)--Low water levels on the River Rhine continue to strain logistics in the European ethylene and propylene markets, with further derivative issues last week exacerbating the already-fraught situation.

The Rhine's levels have hit historic lows in October.

There were a number of force majeure declarations last week from the derivative markets, unable to acquire the necessary raw materials for production.

This has added to the length in the olefins markets, with talk of deeper discounts particularly on ethylene as producers look to manage balances.

However, given the logistic issues, it was difficult for some transactions to be completed.

“If you can’t move the ethylene, you can’t sell it,” said one producer.

Spot deals concluded on ethylene remain at double-digit discount level, with deals for November delivery also confirmed at this level last week.

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The derivative outages are adding to the length for both ethylene and propylene, with pockets of length on the coast in particular.

There remain some concerns over the level of actual demand in the markets, given the underwhelming performance from the polyethylene (PE) market and a slowdown in demand for polypropylene (PP).

Players still felt that demand from the propylene derivatives remain stronger than ethylene, with decent levels from polymer and non-polymer sectors.

The main concern for businesses throughout the supply chain is managing the current logistic issues, with barge transport impossible for parts of the Rhine.

Barges were unable to enter or leave the Wesseling harbour last week, and there were a number of downstream force majeure declarations for BASF at the Ludwigshafen facility.

Unless there is serious rainfall in the coming weeks, there is talk that the low water levels and logistical chaos may continue into spring 2019.

At this stage alternative transports options are already stressed, with strong competition on truck and rail tank cars (RTC) transport.

Sources have also described congestion on the ARG pipeline, largely linked to the high demand for transport from Antwerp to the eastern network, given the ongoing difficulties.

Ethylene exports are considered unworkable given the prices in Asia and high freight rates, which is resulting in continued length on the coast.

Sellers on the coast are said to be managing balanced closely, with overseas options limited.

There is continued talk of lower cracker rates particularly for those facilities impacted by the Rhine, which is causing some concern for propylene supply going into November.

All of this uncertainty is adding to the complicated picture for the contract discussions for November, which started late last week.

Negotiations are expected to continue to the very end of the month, given the volatility in upstream prices as players want to be as clear as possible on cost positions before making any agreements.

Given the feedstock volatility, challenging logistics, and difficult supply and demand balances in the region, contract talks are expected to be a lively affair.

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Pictured: The River Rhine on 24 October near the key measuring gauge station of Kaub
Source: Michael Probst/AP/REX/Shutterstock

Focus article by Katherine Sale