European propylene, ethylene improve, upstream developments and macro-economic conditions remains poor

Players in Europe’s ethylene and propylene markets have been buoyed by improvement in activity, this has been tempered by the fact that visibility regarding upstream developments and macro-economic conditions remains poor, as per ICIS. An improvement in demand compared with December was already widely expected because of restocking but a contributory factor has been the unplanned cracker issues at Borealis’ Stenungsund plant in Sweden and notably the outage at Naphtachimie’s Lavera France cracker following a compressor fire. Also, stronger-than-expected trade data from China for December has helped to buoy general sentiment. As per an olefins producer, “all of us managed to empty the pipelines completely all through the chain. It’s a much different story compared with [end of] 2011 – all the warehouses were full then.” However, while there was more optimism that general market conditions could be improving; there were still hurdles to be overcome, not least the ongoing eurozone debt crisis and its negative impact on demand. Cracker rates have been ramping up, but some cracker operators said they have so far only increased rates by 1-2% over December, generally pegging an average European rate at or above 80% compared with about 75-80% in December. However, other operators report much higher rates at some sites – above 90%. There is usually some disparity depending on location, system and derivative portfolio. A couple of players said that as new 2013 contracts come into effect, they would naturally expect an uplift in operating rates but that it was not necessarily economic sense to produce marginal tonnes even though spot prices have improved. Some ethylene and propylene spot offers are currently considered too pricey especially with regard to February or March deliveries despite the onset of the cracker turnaround season. Ethylene is currently regarded as balanced-to-tight, while propylene – notably polymer grade propylene - is viewed as tight, a complete reversal of its status for the last few months of 2012. This is also attributed to some cracker operators having switched to lighter feedstock slates because of better propane economics. Admittedly, much of the demand on the spot market has been a result of the Lavera cracker outage with both the joint venture operators and their customers looking to cover prompt shortfalls. Spot prices are firmer as a result, but still below the prevailing January contract prices. Sources have remarked on the deep-sea ethylene volumes having been booked from Korea, Taiwan, the United Arab Emirates (UAE), the US, Mexico and Argentina to Europe for January and February arrival and said this was evidence of good demand. Most however suggest that a combination of cracker maintenance preparations and a newly operational terminal are more responsible for the activity. Total incoming volume has been estimated at around 48,000 tons. It remains to be seen whether this momentum on imports will continue.