European olefin buyers are aiming for a plunge in contract prices of both ethylene and propylene following the direction of feedstock naphtha. As it was seen on December 20, when January ethylene and propylene contract prices were settled, naphtha was priced at $962.25/mt CIF NWE. It has since fallen, to be assessed at $917/mt CIF NWE Monday.

However, the buyers are more optimistic about fall in ethylene contract prices than propylene for February.

Spot propylene is currently trading at par with the January contract price of Eur1,130/mt ($1,545/mt) FD NWE, while spot ethylene is trading at Eur950/mt FD NWE, a discount of 23.4% to the January contract price of Eur1,240/mt FD NWE. Spot ethylene has also come under pressure from deep sea imports, which were not as prominent in the propylene market.

Part of the reason for the tightness in propylene can be attributed to reduced operating rates which, although higher from December, are pegged at between 80-85%.

But despite the fall in naphtha, cracker operating rates haven't increased, partly due to the length in the ethylene market.

Even as, sellers have to deal with bigger 2014 discounts on the contract price, low operating rates, and increased spot exposures. Most buyers will think crackers have bigger margins than in reality while on the other hand, most sellers will think buyers have strong markets and [polymer-grade propylene], especially since it's high priced on spot, an ethylene and propylene buyer said

Both side said, the contract price negotiation would be "tricky." Most sellers are aiming for a rollover on both ethylene and propylene.