EPCA 2018: Disagreement, illiquidity delaying European monthly petrochemical contract settlements

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Vienna —
A lack of liquidity in spot the market along with disagreements between producers and consumers are the prime reasons for several of the European monthly contracts for petrochemicals getting delayed and occasionally not settling at all, trade sources said Tuesday on the sidelines of the ongoing 52nd annual EPCA conference in Vienna.

Trade sources said that if the delays continue, the market would look for alternative ways of settlements including individual settlements between parties or shift to more spot trade.

Products like monoethylene glycol and that are a part of the polyester chain have regularly seen delayed settlements over the past year as spot market liquidity has evaded the market, leading to a dearth of indications.

There are also other products outside the polyester chain where settlements have started to see delays. Recently, ethylene — the building block for the largest set of petrochemicals — saw a delayed settlement for October.

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“There have been instances where people [contract market participants] do not want to follow the initial settlement,” a market source said.

As the second week of October edges to a close, the product has not yet settled for September. An initial settlement for September was made at Eur1,012/ FD NWE, but since then, buyers and sellers have disagreed on whether that settlement should be followed.

The latest buy idea from a consumer for the contract settlement was heard at Eur995/mt FD NWE but the sell idea was heard much higher.

Similarly contract settlements have been repeatedly delayed both in Europe and in because of a wide gap in price ideas among producers and consumers.

For ethylene, the contract for October was settled on the first working day of the month when the usual practice is to reach a settlement well before the month starts.

“The [ethylene] settlement process needs to consider a wider range of factors,” a European contract settler said when asked to explain the delayed settlement.

–Shashank Shekhar, shashank.shekhar@spglobal.com

–Edited by Alisdair Bowles, alisdair.bowles@spglobal.com

Source: S&P Global Platts