This was the second number to emerge as the initial €1,130/tonne rollover settlement on 26 July failed to garner the necessary support from the majority of propylene consumers.
They said the rollover was unacceptable and out of line with reality. One source said that buyers were utterly dismayed because a rollover had been the opening position of most suppliers and that firm offers had already been received at €20-30/tonne reductions.
The opposition to the rollover settlement was primarily because many sources felt it did not accurately reflect the current bearish market conditions. Sources added that it was especially unrepresentative in the light of the August ethylene contract settlement, which was up by €30/tonne at €1,120/tonne.
A higher contract price for propylene compared with ethylene would indicate that firmer market conditions prevail, but this is clearly not the case.
Propylene has been under downward pressure in July because of planned and unplanned derivative issues amid an underlying weak performance from its key derivative, polypropylene (PP).
Spot numbers are currently as much as €200/tonne below the prevailing contract price, but are beginning to show signs of stabilising.
The initial rollover settlement was between two major suppliers and one major, integrated consumer.
One of the settling producers said at the time it considered the rollover “the logical outcome for August”, citing the conflicting factors of higher upstream costs versus lengthy supply.
These factors offset each other, the producer said, particularly as there was “some light at the end of the tunnel regarding sentiment in Asia”, which would likely support the European market.
The other settling producer said it believed the demand situation would slowly improve throughout August, while it remained concerned about a further upswing in naphtha prices.
However, discussions continued with the minus-€15/tonne agreement emerging late on Thursday.
Three non-integrated consumers and three separate producers were involved. Two more consumers followed on Friday, one also non-integrated but the other a key integrated buyer.
The €15/tonne reduction is being seen as a true compromise by the parties involved.
“In the end it’s not about the number anymore,” one of the consumers said. “It's about sending a message that we don't see propylene in a better condition than ethylene.”
While the initial settling producers stand by their agreement, they are recognising the fact that a clear “two plus two” producer-consumer arrangement has been found - the minimum that is required before a contract price is considered a valid market price.
One other producer, who has not been involved in either of the settlements, said that it was not accepting the second number as it was damaging to the monthly contract mechanism because it showed as lack of discipline.
Another source said that, on the contrary, a number being established and finalised so conclusively was evidence that the monthly process does work even in times of dispute.
There was last a stalemate on the propylene contract in August 2009. In this case, sellers refused to settle because they thought the initial price settlement was too low.
However, a major producer later followed because it was concerned that the still-new monthly process would be destroyed.
Prior to that, two numbers emerged for the third quarter 2006 contract but as the second, lower number gained more support, the settling producer retracted its original offer.
($1 = €0.70)
