Market and product

LONDON (ICIS)--February contract prices in Europe for ethylene (C2) and propylene (C3) are expected to increase from this month's prices because of a bullish outlook on feedstocks and robust demand, market sources said on Friday.

While upward price adjustments were widely expected for both C2 and C3, owing to the tight supply-demand balance, some consumers were unhappy with the magnitude of the increases already being discussed by some players, notably polyethylene (PE) producers.

This week, a number of PE and PP producers were already signalling extensive price increases next month for their downstream markets because of their expectations of how the monomer contracts will settle.

“We agreed significant increases for January contracts on the basis that cracker margins needed to improve…they have improved,” said a non-integrated consumer.

Margin-analysis data compiled by ICIS show this to be true, with the average December 2010 contract cracker margin at €153/tonne ($204/tonne), while the January-to-date margin was at €309/tonne.

“Naphtha feedstock has been fairly stable throughout the month, the euro has strengthened, so I don’t see [high] pressure from feedstock at all,” the consumer added.

The consumer said its view was that a more modest increase of €15-20/tonne was more realistic and justifiable under the circumstances.

However, one major producer said: “[An increase of] €15-20/tonne doesn’t change anything – this [just accounts for] the volatility of the crude and euro. [The increase] cannot be below €40/tonne.”

Another producer agreed: “From a cost side, with demand factored in, [the increase] should be €50/tonne plus.”

Sources agreed that finding a workable compromise for all parties would be a “tough call”.

“Demand is really quite strong. The lack of stock in downstream polymer markets remains very supportive [for an increase],” said a major integrated consumer.

This was echoed by the major producer, who said: “Demand is running reasonably well. We do expect February to also be good. Some players are preparing for maintenances, so will be running hard.”

However, a second major non-integrated consumer cautioned: “Because we are consuming, [it] doesn’t mean that [increasing prices are] sustainable”

The second major non-integrated consumer said its own demand was not so bad. But the issue was economics, as over the whole of 2010 its own derivative sector had fallen short of recovering upstream costs.

“If we would reduce consumption, it would be worse,” said the consumer, as it would be unable to cover fixed or variable costs. “The producers are extremely bullish.”

Overall, price hikes of between €15-40/tonne and €20-50/tonne were being mooted for ethylene and propylene contracts, respectively. The settlements were expected next week.

The January ethylene contract price settled at €1,110/tonne FD (free delivered) NWE (northwest Europe), up by €105/tonne from December.

Supply was generally described as balanced to tight because of recent cracker problems and limited availability, at least until mid-February, of deep-sea tonnes. Spot levels were being pegged around $1,350-1,400/tonne CIF (cost, insurance and freight) NWE, up $50/tonne from last week.

The January propylene contract price settled at a record high of €1,070/tonne, up by €110/tonne from December. Spot prices were being talked at around contract value on a CIF basis, although the much stronger US market was leading to price discussions in Europe of around the contract price plus €70/tonne.