Europe February propylene confirmed up €90/t at €1,105/t

LONDON (ICIS)--The European propylene contract price for February has been fully confirmed at €1,105/tonne ($1,454/tonne), up €90/tonne from January, two buyers and three producers said on Friday.

The initial propylene contract price was settled between one main producer and one non-integrated consumer. The same buyer followed the first settlement with a second manufacturer. A third producer also agreed the plus €90/tonne with a second buyer.

The contract price was agreed on a FD (free delivered) NWE (northwest Europe) basis.

A significant increase in the propylene contract price for February was widely expected because of intensified feedstock cost pressure since the last settlement.

The firmer tone in the upstream markets was further exacerbated by unfavourable exchange rate conditions, despite some slight rebound in the euro against the US dollar over the past week.

Sellers had been pushing for a three-digit hike for the February contract price, in view of spiking upstream costs and the urgent need to restore profitability at cracker level.

One of the settling manufacturers said that the upward move was also supported by an uptick in demand during January, which was expected to continue into February.

Some buyers reluctantly accepted that the recent jump in feedstock costs necessitated a substantial rise in the contract price, as well as reasonable to good demand, depending on derivative.

One of the buyers involved in the settlement said it was also hopeful that the increase in the contract price would help to kick-start much-needed margin improvement throughout the value chain. It added that it was looking to pass on downstream an increase larger than the propylene move.

Other buyers, had been looking for lower increases of €40-60/tonne, as they were concerned that such a steep increase would jeopardise downstream demand, which although slightly improved in January, is still fragile, amid ongoing macroeconomic concerns.

Sellers and some buyers considered this unrealistic, from a cost perspective. One customer added that its initial concerns about downstream export potential being dampened by a significant increase in the propylene contract price in Europe were being lessened by the firming sentiment in other regions, particularly in the US.