Mixed sentiment in the Europe spot ethylene market

Nel Weddle

11-Apr-2014

Focus article by Nel Weddle

LONDON (ICIS)–Opinion regarding the spot ethylene market in Europe is mixed, with some expecting producers to be faced with lower prices – particularly on the export market – should they need to remove volumes, while others say the supply and demand balance has markedly improved.

Market players have estimated that about 55,000-60,000 tonnes of ethylene has been exported to Asia since the start of the year in an attempt to rebalance systems while adhering to contractual obligations on propylene.

Export deals were done within a $1,190-1,210/tonne FOB (free on board) NWE (northwest Europe) range for February through first half April loadings, but FOB netbacks have since slipped, with sources suggesting prices at $1,150/tonne FOB and traders have pointed to prices at $1,100/tonne FOB NWE and even below.

The FOB netbacks have fallen on the back of recently weaker pricing in northeast and southeast Asia and strong freight rates, but higher netbacks are possible to India and Pakistan, according to sources. Indeed, a 5,500 tonne ethylene parcel, due to load next week but still subject to vetting approval, was heard sold at $1,240/tonne FOB to Pakistan this week.

“The [Asian arbitrage] window has narrowed,” a trader said, “my target is $1,100/tonne [FOB] otherwise I cannot make it to southeast Asia. Asian buyers cannot commit for June arrival, they expect more supply from the Middle East.”

“Its [export opportunities] are trickier, we are getting down to the last cent, its borderline,” a producer said, adding that it was reviewing potential exports on a case-by-case basis.

“Each time they [producers] say its borderline, then they go down again [in price],” a buyer said, adding that it would certainly not be buying at higher levels. It said that one of the drivers for the low prices was the fact that co-product prices were “nice”.

“There is not enough in the propylene tonnes to compensate for the close to zero margin on export ethylene,” the producer countered.

But despite some fears that the export outlet has become limited, there appear to be no general plans to adjust operating rates – up or down.

Some producers are more relaxed, having already fixed exports to carry away any surplus tonnes and also mention an improved supply and demand balance on the back of reasonably healthy demand.

“Internal demand is very strong, stronger than March, fundamentally demand is good,” a second producer said.

Additionally, domestic spot prices are providing a better netback than FOB activity – the most recent deal was done on the pipeline at €865/tonne FCA (free carrier) NWE, equivalent to about $1,200/tonne.

The gap between spot and contract pricing remains very wide and most sources do not expect this to change significantly for some time – despite small downwards adjustments on the contracts. Europe is quite simply in a position of structural length.

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