Europe's ethylene, propylene consumers target substantial decreases for November contract price

20-Oct-14

Ethylene and propylene consumers in Europe are targeting substantial decreases for next month’s contract price (CP) on the back of the weakness in the upstream crude oil and naphtha markets, as per sources in ICIS. Crude oil values have plummeted over the past couple of weeks amid oversupply and concerns over weakening demand. Naphtha prices have followed this decline. According to ICIS data, September’s average cost insurance and freight (CIF) northwest European (NWE) naphtha price was €652/ton, while October’s average to 16 October currently stands at €581/ton. In real terms though, naphtha prices have sunk €107/ton in October so far; and few see little upside potential in November, and although crude oil prices rebounded a little on Friday with naphtha values following suit, bearish factors persist. Three-digit price reductions are frequently indicated for both ethylene and propylene CPs. “Our own customers can see [what is happening upstream] - they are going to look for decreases because of low demand, poor market conditions,” a consumer said in ICIS. “[The] rationale from producers will be to keep margins – I don’t blame them - but to allow us to buy our contractual volumes, we need to ensure a good CP [outcome]." A selling source said: “If you look at it from cracker margins [perspective], yes, a three-digit decrease is achievable, but ethylene is scarce with Shell out.” Demand for polyethylene (PE) is surprisingly good, several sources said. This is unusual because the weaker upstream market would normally send buyers to the sidelines in expectation of a lower CP. The better-than-expected demand is being attributed to improved export activity because of the strength of the dollar, limited imports for the same reason, the need for consumers to fulfill their year-end volume rebate conditions following a number of earlier production outages. However, sources on the propylene derivative side have been indicating signs of a slowdown in demand and lower sales volumes throughout. Contract players will have a better view on their own November supply and demand needs from next week and will continue to monitor upstream developments very carefully. October ethylene and propylene contract prices rolled over from September at €1105/ton and €1150/ton FD (free delivered) NWE (northwest Europe) respectively.