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Europe C2, C3 Jan CP talks underway, sharp rises expected

December 17/2010

(ICIS) -- European ethylene (C2) and propylene (C3) January contracts will rise significantly because of high upstream costs and tight supply and demand fundamentals, market sources said on Friday.

Producers were targeting three-digit increases for both products. The largest adjustments so far in 2010 had been from January to February when the ethylene and propylene contracts increased ?70/tonne ($92/tonne) and ?85/tonne respectively.

Cracker margins were under negative pressure from recent and ongoing strength in the crude oil and naphtha markets. A weak euro was exacerbating the impact of higher US-based costs and the result was that the average contract margin for December was the lowest it had been all year.

Cracker margins were in one word, a disaster, a major producer said. In addition to the cost pressure, supply for both olefins had tightened over recent weeks because of overruns on planned maintenance, slow restarts following the French strikes and reduced operating rates prompted by economics and cold weather.

Some sectors would be able to recover the costs, but for others such as high density polyethylene (HDPE), polyvinyl chloride (PVC) and possibly phenol, a sizeable increase would be of concern and could lead to some cutbacks in monomer consumption, sources said. In general, the view was that propylene derivatives were in a better position to be able to absorb and recover the costs.


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