Europe olefins players eye reductions for September CPs

LONDON (ICIS)–European ethylene and propylene market players on both sides of the fence are widely expecting a reduction in next month’s contract prices (CPs) on the back of the recent weakness in upstream naphtha values, market sources said on Friday.

“[When you look at] average naphtha July versus August, a reduction is clear,” a source said.

Naphtha prices have been steadily softening through August on the back of weaker Brent crude oil values and generally soft fundamentals. According to ICIS data, the average naphtha price for July was €692/tonne CIF (cost, insurance, freight) NWE (northwest Europe), compared with €647/tonne for August to date.

Feedstock movements are usually the main driver in the monthly CP negotiations, but the supply and demand outlook is also taken into account.

“It should be down, but the question is how much,” a second source said, adding that it did not have a clear view.

“It seems there is room for a decrease around €50/tonne for both,” a third source said.

It added, “considering the change between June and August, producers have increased their margins in the range of €150/tonne, so we should expect a larger decrease between €50-80/tonne.”

“It’s a decrease for sure, we can’t avoid that now,” a fourth source said, “naphtha is really weak.” The source indicated that it thought a €50/tonne reduction was possible on propylene.

“I am hearing €40-50/tonne down [for ethylene] but I am not sure this is realistic,” a trader said, adding that “balances are stable, demand is good.”

A fifth source agreed: “potentially there is some tightness with the [planned] shutdowns coming up and it’s a positive for everyone that demand is very good,” it said. 

Others said that it still remained to be seen whether demand would stay buoyant.

“[Demand in] June and July was good, in August it slowed because of holidays, weakening naphtha, [so] we still have to see whether demand comes back,” the first source said.

Much will depend on naphtha’s performance over the next couple of days to determine the extent of any decrease. Sources said any late uptick in naphtha prices could lead to a lesser reduction or potentially a rollover on both.

Negotiations will get under way in earnest next week. There seemed to be less of a consensus on the propylene outcome compared with ethylene.

Ethylene settled for August at €1,205/tonne FD (free delivered) NWE, down by €15/tonne, while August propylene was down by €20/tonne to €1,155/tonne.

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