Price and market trends: Uncertainty over sustainability of Europe C3 spot price spike

28 March 2014 09:45 Source:ICIS Chemical Business

Players suggest this is not representative of the broader market although supply constraints are an issue

News of a polymer grade propylene (PGP) spot price transaction for April delivery done at about 5% above recent trade – a 23-month high – on the back of tight supply has so far failed to find support among the wider market, sources said on 19 March.

On 17 March, 1,000 tonnes PGP was fully confirmed sold at €1,185/tonne on a FCA (free carrier) Antwerp basis, a number not seen since April 2012. There were also apparently discussions at contract price plus 11%.

Spot prices have been closely aligned with contract prices (CP) since early 2013, ranging between CP flat to discounts of 3-5%, narrowing most recently to CP flat to minus 0.5-1.0%.

Propylene supply has tightened further in recent weeks because of the ongoing under-utilisation of crackers due to ethylene oversupply, supply constraints because of maintenance turnarounds at some refineries and better-than-expected demand, most notably from the phenol sector.

“It is quite a high price – I am sure internally we would not get a green light to buy at this level,” an integrated source said. Sources suggested the deal may be related to some “special circumstances” and had been a “last resort” given that 1,000 tonnes was just a small volume relative to the whole market. “I don’t think its representative,” said the integrated source, but added, “I imagine that sellers are reluctant to release tonnes if only at CP flat.”

Some sources agreed availability was the main issue now, not price, and producers had to keep a close eye on supply contract obligations. Few would be willing to see the short-term gain on a small parcel amid their own tight balances when the future supply and demand picture was unclear.

A couple of sources also said demand from the phenol sector was supply-driven following the storms earlier in the year which had delayed shipments. Normal demand levels could soon resume.

From the consuming side, affordability remains key for most derivative producers who have said they would rather reduce operations than pay excessively for propylene since margins were already so low. Many considered CP flat to be the ceiling.

“Let’s not forget that selling at CP flat is also an ‘increase’ as the CP benchmark is usually already discounted on a contractual basis,” the integrated source said.

However, the view of some players is that CP flat is a psychological barrier that needs to be overcome if people want liquidity – availability – to improve.

“To me this is further evidence of the contract balances being out [of sync] for producers on propylene versus ethylene,” another source said. This means a seller would be better off buying in supplementary propylene at CP plus than trying to sell the low-priced – relative to the CP – ethylene spot.

The March propylene contract settled at €1,130/tonne FD (free delivered) NWE (northwest Europe), the second consecutive rollover for 2013.

By Helena Strathearn