FACTBOX: European petrochemical contract negotiations

London — European petrochemical markets are wrestling with a divergence of pricing and supply and demand fundamentals between feedstocks and downstream markets.

In the feedstock markets, substantial increases were generally seen in contract prices in July, driven by a continued strengthening in the upstream energy complex. Many upstream spot markets were also seeing the effects of improving sentiment in the energy complex.

As a result, feedstock producers are keen to protect their lower margins and pass costs to downstream players.

However, in many polymer and solvents markets, demand seemed insufficient to allow price increases.

The effect of shrinking margins was also being felt in the gasoline blending market, where profit margins for many blending component producers, such as ETBE and MTBE, have been pressured due to a negative gasoline-naphtha spread in the light ends market, creating a bearish sentiment for high-octane demand.

Feedstocks

-- Polystyrene producers push to widen margins with July contract pricing, but buyers indicate demand does not support the increase

-- The margin between feedstock ethylene and polyethylene could turn negative for the first time in 2020 on reduced demand: sources

--Vinyl acetate monomer (VAM) offers in Europe were up in July, following months of bearish fundamentals, as producers' margins were under pressure due to higher feedstock ethylene cost: sources

-- The poor phenol production margins, resulting in reduced rates for both phenol and its co-product acetone, have created a tight European acetone market and led to an 18.5% week on week increase in acetone prices on July 7.

--Feedstock rises see Turkish polymer offer levels raised substantially but buyers prove doubtful on whether they will accept

--ABS producers look to expand margins beyond feedstock increases amid upcoming scheduled turnarounds

Supply and demand

-- Ethylene discounts to the July contract price widen on increased supply/easing demand

--Discounts seen for some HDPE grades as producers feel pressure of reduced July demand

-- The negative gasoline to naphtha spread, creating a bearish environment for high octane components demand for gasoline blending, puts pressure on profit margins for MTBE and ETBE producers

-- Narrow gasoline-naphtha spread caused a build- up of blendstocks in Europe and a 30% drop was heard on July 8 in offering premiums for toluene comparing to the last assessed level.

--Polymer offer levels raised substantially in West Africa though rainy season keeps lid on demand

--White spirit prices lags solvent naphtha, hexane, on oil feedstock price divergence

--Concerns over COVID second wave threaten Q3 demand picture for petrochemical markets

-- European PET and HDPE recyclers continue to push hard for lower post-consumer bales prices in July amid falling demand for downstream recycled flakes and pellets

-- Despite decreases achieved for PET bottle bales prices through June to July, there has been limited margin recovery as R-PET buyers have been successful in pushing flake prices downwards in line with bales