As olefin prices rebound, cracker run rates in Europe have gradually improved in January, but are still at a reduced level of around 80%, as per Platts. In January, ethylene contract prices rose Eur 40/mt to Eur 1120/mt FD NWE from December, while propylene increased Eur 20/mt to Eur1105/mt FD NWE.
Crackers were only producing at around 70-75% of their capacities in November-December as ethylene and propylene prices plunged due to excess supply and low demand. But some sources said there were still certain crackers that were "struggling" at run rates below 80%. However, many cracker operators remained reluctant to rapidly ramp up run rates because of poor margins and the economic uncertainty caused by the eurozone crisis. Some sources also said the rebound in olefin demand was due to short-term stock replenishment and may not be sustainable. Downstream polyethylene and polypropylene demand, though picking up lately due to some prebuying and restocking ahead of expected steep price increases in February, remained fragile and were not showing any solid indications of a potential recovery, they added.
"We are firm (in our position) for a three-digit contract price increase in both ethylene and propylene to reflect the dramatic increase in feedstock which damaged our margins," an ethylene supplier said. A buyer admitted he may have to accept a "significant" increase in February contract prices due to soaring feedstock costs.
Steam cracker margins hit historical lows earlier this month, but have trimmed losses since. Spot and contract cracker margins were assessed at minus Eur 238/mt and minus Eur 170/mt Thursday. Upstream, naphtha in euro terms was still hovering around all-time highs. It was assessed on Thursday at Eur 743/mt CIF NWE. It touched a historic high of Eur 751/mt CIF NWE on January 10. In the spot market, ethylene prices continued to advance this week, gaining Eur 20/mt since Friday, representing a gain of Eur160/mt since the beginning of the year. Prices were assessed at Eur1,080-1,085/mt FD NWE and $1,325-1,330/mt CIF NWE Thursday.
Source said the market had been pushed into a "strong backwardation," citing the inland pipe system as "temporarily short." "With costs stable and euro a notch higher one would think that -- at least temporarily -- we are about to hit a ceiling [in prices]," a source said.
A spot deal was reported Thursday at Eur 1120/mt CIF NWE, 2.3kt for February arrival. The seller confirmed, but counter-party confirmation was not available. Production issues at integrated producers supported higher prices, sources said. For propylene, spot prices for the widely traded polymer grade rose steadily since the start of January, reaching Eur 940-945/mt FD on Thursday, the highest since July 26.