Export demand continues to support Europe olefins

Nel Weddle

15-May-2009

By Nel Weddle

Export demand supports Europe olefinsLONDON (ICIS news)–Export demand, primarily from Asia, is continuing to support European olefins leading to better-than-expected demand for ethylene (C2) and propylene (C3) this month, market sources said on Friday.

The propylene market had been particularly impacted by export demand for propylene and its key derivatives polypropylene (PP), acrylonitrile (ACN) and oxo alcohols.

While the propylene arbitrage window had closed a couple of weeks ago it was still open for its derivatives. Only the phenol chain was still very much depressed and operating at severely reduced levels.

Combined with an already reduced cracker output because of the comparatively weaker situation on ethylene, the propylene market was tight.

“We don’t have much availability. May is pretty much done,” a major propylene producer said.

Consumers said that attempts to secure additional volumes from contract suppliers were unsuccessful. Polymer grade prices broke though the contract barrier for the first time – apart from a two to three week blip in July 2008 – since November 2007.

Spot prices were currently being indicated at around €550-560/tonne FD (free delivered) NWE (northwest xml:namespace prefix = st1 />Europe), according to global market intelligence service ICIS pricing.

The last reported deal was at €530/tonne ($726/tonne), compared to the current May contract level of €520/tonne.

“We have the impression that prices are getting higher and higher,” said a seller.

Sources generally anticipated a firm market for propylene through to the second half of June. “Demand is there for June, but we don’t see anyone selling,” said the propylene producer.

Ethylene was also performing better than had been expected at the end of April, when producers reported a “disappointingly flat” level of nominations for May.

Polyethylene (PE) demand for export was good. Freight rates were low so netbacks were better than for some European business.

Poly vinyl chloride (PVC) markets had seen some export activity but the opportunities to carry this further were being limited by a depressed and oversupplied caustic soda market.

A major consumer said that ethylene demand was “not as good as I hoped, but its improving step by step.”

Firming naphtha values as crude headed towards $60/bbl, saw spot ethylene sellers raise prices to €570-580/tonne FD NWE; a deal was confirmed this week at the high end of the range between a producer and a non-integrated consumer. The May contract settled at €685/tonne FD NWE, so there was still some way to go before spot levels breeched this.

Some sources also pointed out that with June contract discussions due to get under way next week some of the demand could now be down to pre-buying strategies. “It’s all export driven, but it’s pretty clear that contract prices will go up so there could be an element of pre-buying,” said a producer.

“Certainly sentiment is a little more upbeat,” another producer said, adding that “in general, cracker rates are looking better”.

Improved ethylene demand could warrant higher cracker rates which would in turn mean more availability and an easing of the currently tight situation on propylene, sources said.

Some sources reiterated their fears for the upcoming summer season.

“It’s still very fragile,” a producer said. “It’s pure guesswork what will happen in the summer – we don’t have a good view of demand,,” it added.

Another producer said: “Nominations we have received so far are reasonably in line with what we see now. It’s blind faith that it won’t get any worse.”

($1 = €0.73)

For more on ethylene and propylene visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

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