Europe C3 spot prices close to breaking contract value

By Nel Weddle

LONDON (ICIS news)–European propylene (C3) spot prices are being talked at six-month highs, and at or above the May contract value of €520/tonne ($694/tonne) for the first time since November 2007 because of tight supply and better than expected demand, market sources said on Friday.

Propylene was performing very well relative to ethylene (C2) because a wide open Asian arbitrage window in April, had led to better than expected demand for propylene and its derivatives.

“It’s been a double effect, [weak] ethylene drives the crackers so there is less propylene output, and there is export of propylene or via derivatives into Asia” an integrated producer said.

While the propylene window was now closed, export demand for primarily the key derivatives polypropylene (PP) and acrylonitrile (ACN), was still fuelling demand for propylene.

“There are still exports of derivatives going on, so we have pretty high consumption [of propylene],” a producer said.

“The derivative chain is empty [because of the economy], so export possibilities have had a significant effect,” a trader said.

Most sources reported tight availability, especially for polymer grade propylene, and numerous enquiries for additional volumes.

“We asked our supplier for more volumes, but they said they had no additional material,” a consumer said, adding “we had to look elsewhere and it was being offered at CP (contract price) or CP plus”.

Weak ethylene and firming naphtha values were not an incentive for cracker operators to increase utilisation rates at crackers. European operating rates on average were being pegged at around 75-80% of nameplate capacity.

“Reduced ethylene means even less propylene,” a source said.

As a result, propylene was currently looking better placed than ethylene to withstand the summer slowdown which olefins players said would start to get under way in the second half of June and last through until the end of August.

“Our view is that the first half of June will still show an upward trend, but this will then disappear,” the consumer said.

“Our May demand compared to April is fairly stable, but we are in danger of the summer hole if [we are] missing export opportunities,” a large propylene consumer said.

“The propylene arb window is already closed, how long will derivative demand last with the summer hole just around the corner?” said a source.  

The short-sightedness of the market was still making longer term planning and expectations difficult.

“The real big issue of the industry is that we have lost the vision, my customers don’t know what they will consume any more than a month in advance,” said a producer.

“The best that we can do is run our system very carefully in order that we have flexibility to absorb the swings that will come with the seasonality.

There is always seasonaility but the difference now is that swings are sudden, and quicker and more dramatic than in previous years,” said another integrated producer.

“Maybe some relief Q3 ( third quarter) could be seen due to delays to Middle East capacity start-ups and possible ongoing demand from Asia, but new capacity would certainly be seen by Q4,” said a major net ethylene and propylene consumer.

($1 = €0.75)

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