The European ethylene contract price for August has fully settled at €1,120/tonne, up by €30/tonne from July.
The price rise was mainly driven by an upswing in naphtha which has heavily impacted contract cracker margins. Contract parties added that underlying concerns regarding downstream demand, despite the improved sentiment in Asia, had mitigated the extent of the increase.
Players recognised that this round of discussions would be tough as it was important to keep demand going through the key August summer month, while also trying to recoup some of the margin loss.
The settlement, which was agreed on 26 July, was between a key olefins producer and two of its customers, both non-integrated ethylene consumers.
A second producer then confirmed, followed by a major integrated consumer. All parties involved have confirmed directly.
Although the general view from market sources was that the settlement was in line with expectations, there was some disappointment on both sides.
One producer said that the settlement was not reflecting the higher-feed and improved-demand situation. While a consumer added it would not confirm the settlement because it disagreed with the size of the increase.
Ethylene production in the second quarter was down 2.19% compared with that of Q1, according to the latest statistics published by the Association of Petrochemicals Producers in Europe, APPE. The figures also showed a 2.38% drop compared with Q2 2010.
Upstream
Crude oil prices remained volatile during the week. The inability of US law makers to reach a consensus regarding its self-imposed debt ceiling and a rise in US crude stocks mid-week provided downward pressure to WTI values. However, there was some short-lived bullish momentum in the market after US oil-and-gas facilities were affected by tropical storm Don. ICE Brent prices were steady for most of the week, supported by a weaker dollar. However, continued concern over European debt issues capped gains.
On Friday afternoon, September Brent was trading around $116.70/bbl, down from the previous week’s close of $118.67/bbl. September WTI was trading around $95.95/bbl, down from $99.87/bbl.
European naphtha cargo prices were relatively stable for most of the week, before slipping to $982-990/tonne CIF NWE on Friday afternoon. Arbitrages remain closed to the US and Asia, although some material moved west regardless. There was less demand than expected from the gasoline industry, while opinions from the petrochemical sector regarding the level of interest in naphtha were mixed. This week's range of $982-1,006/tonne CIF NWE compares with a range of $974-1,010/tonne the previous week.
Downstream
The €30/tonne increase in the upstream ethylene market is prompting a number of European polyethylene (PE) producers to seek increases of €50-100/tonne for August business. However, many players feel slow summer demand will cap the potential increase, particularly as a couple of producers are widely thought to be sitting on high levels of stock. Traders continue to target higher spot prices, which are not widely accepted by customers who remain wary of purchasing at higher levels.
Cracker update
European contract cracker margins based on naphtha feedstock continued their downtrend, falling by €7/tonne in the fourth consecutive week. Margins remain at their lowest level since end-April.
Naphtha prices rose $20/tonne in the week ending 22 July, but this was partially offset by a 1.5% weakening of the US dollar against the euro, which led to only a 0.5% increase in costs.
Spot naphtha margins slipped by €33/tonne to their lowest since the end of 2010. Rising feedstock costs and lower propylene and butadiene (BD) prices offset firmer spot ethylene values.
Contract cracker margins based on liquefied petroleum gas (LPG) were flat.
Naphtha retains the advantage over LPG, but this is only €15/tonne, compared with €22/tonne last week. However, at least one European cracker operator said its feedstock slate had shifted entirely to LPG, and that it assumed others had done the same, where possible.
Cracker operators are tweaking feed slate and severity levels to optimise production in favour of ethylene. Several sources said that their crackers are running well at reasonably high rates. There was a suggestion that rates might even be increased given the better-than-expected ethylene supply-and- demand balance, but there is no clear consensus on this.
The status of Repsol’s 660,000 tonnes/year ethylene cracker at Tarragona, Spain, is unclear this week. It was running at reduced rates last week because of minor technical issues.
BPRP’s 500,000 tonnes/year No 4 ethylene cracker at Gelsenkirchen, Germany, was back online and on-spec on 24 July as expected.
Some problems were erroneously reported at Borealis’s Stenungsund, Sweden, cracker late on Friday, but these are now thought to be relate to a derivative unit at the site instead. No further details could be confirmed.
Petkim’s Aliaga cracker in Turkey has restarted following planned maintenance, according to sources. Direct confirmation was not available. The cracker has the capacity to produce 520,000 tonnes/year of ethylene.
Polimeri Europa’s 490,000 tonne/year ethylene cracker at Porto Marghera, in Italy, is due to restart early next week. This marks a delay of around two weeks. Its sister subsidiary Syndial has shut down its 250,000 tonne/year ethylene cracker at Porto Torres in Sardinia.
There are still unconfirmed reports this week that one of Hungarian producer TVK’s two crackers at Tiszaujvaros is down because of technical problems. This could not be confirmed.
Further forward, planned shutdowns will get under way at the following sites: these have not been confirmed by the companies concerned.
INEOS’s KG cracker at Grangemouth, in the UK, for four weeks in August, its No 4 cracker at Dormagen, near Cologne in Germany, in September-November, and its G4 cracker, also in Grangemouth, from September to October.
ExxonMobil’s 830,000 tonnes/year ethane cracker at Mossmorran, in the UK, will be down in September.
Total’s cracker at Gonfreville, France, is due to go into a six-to-seven week maintenance in September.
Unipetrol’s Litvinov cracker in the Czech Republic is also due to go into maintenance in September.
The upwards trend continues on the spot market. Supply is tighter than expected and demand has improved, although several sources have attributed this to either pre-buying in view of an expected rise in the August contract, or derivatives running hard ahead of planned maintenance shutdowns.
Unexpected cracker issues, which had encouraged a spate of buying interest, are now mostly resolved, but deep-sea availability is limited for Europe as volumes are preferentially heading east. There does seem to be some uncertainty as to whether two 9,000-tonne cargoes, one already arrived in the region and another due to be loaded soon, have found homes in Asia.
Price-wise this week, a 2,300-tonne cargo was sold producer- to-consumer at €1,000/tonne CIF NWE for August delivery. This was not fully confirmed, but sources were indicating similar price levels.
Sellers said further buying interest is evident, but there is some hesitancy in coming to terms with the rising levels.
Pipeline prices are pegged in the low-to-mid €1,000s/tonne FD NWE, but no deals were openly reported this week.
Deep-sea tonnes are assessed at $1,450-1,500/tonne CIF NWE this week, but no deals were heard. There is availability ex-Iran, sources said, but interest for these tonnes is largely already covered.
Asian prices are assessed at $1,140-1,170/tonne CFR northeast Asia and at $1,170-1,250/tonne CFR southeast Asia this week.
($1 = €0.70)
This week on ICIS ( www.icis.com )
27 Jul 11 18:17Europe August ethylene fully confirmed at €1,120/tonne
28 Jul 11 17:46 Two Europe August propylene contracts agreed €15/t down
27 Jul 11 18:56 INEOS declares FM on Grangemouth ethanol in already-tight market
26 Jul 11 07:12 China June petrochemical imports fall; price spikes deter buyers
26 Jul 11 15:47 Initial Europe August ethylene contract agreed up €30/tonne
