Europe benzene players trial new starting
point for negotiations

LONDON (ICIS news)--Dissatisfaction about the European benzene contract negotiation system has led some players to trial a new system this month, whereby an average of up to three days’ worth of deals, instead of an average of only one day’s worth, is taken into consideration as a starting point for the discussions, sources said on Friday.

Traditionally, the benzene contract price is based on deals that are done on the penultimate day of the previous month. This often frustrates market players, who say that a range of one day is not always representative of the month to come.

On the penultimate trading day of November, for example, when the range would represent the average for the December contract price, the sudden crisis in Dubai unexpectedly pushed European benzene prices down.

This complicated negotiations between partners, as most players agreed that the low average of the range was unrepresentative of future December pricing.

A producer said: “Both I and my customers agreed that the average of about $845/tonne was too low for the December contract price, which is why we eventually managed to agree to a higher price of $850/tonne.”

The source added: “It was difficult, however, because I respect the system [whereby the average range of the previous day is used as a starting point for negotiations], but this month it was just not right.”

At the same time, traders were usually involved in the majority of deals on the penultimate day of the month, and many sources had previously expressed concerns that traders’ incentives might be different from industry players’ incentives.

A producer, who is involved in the negotiations, said that “speculation” should not be part of contract negotiations.

A buyer said that arbitrage opportunities to other regions, or a long or short position from trade, for example, should not have an immediate impact on the domestic contract price for the month.

This month, several contract partners would trial a new system whereby multiple trading days in December would be used as the average starting point for the negotiations.

A consumer involved in the negotiations said: “The January contract might be based on deals done on the 29th and possibly even 24th and 28th December, as there is a possible shift towards looking at a wider window of trades.”

Another buyer echoed this when he said: “There is an intention for both buyers and sellers to be more neutral and depend less on short-term volatility.”

Still, even a new system would have its shortfalls. “The more days you use, the wider the range. This is all a big gamble,” a trader, who agreed with the wider window in principle, said.

Not all contract partners had already heard of, or agreed to, this trial. A producer said: “I agree with the one-day average, although there is a lot of manipulation possible. But let’s try and see what the difference is between the average of three days and the average of one day, with more focus on the one-day average.”

The January contract price was likely to be agreed on 31 December, although some sources said they would start negotiating on 30 December.

On Friday morning, spot benzene traded about $130/tonne (€91/tonne) above the December contract price, firmer in line with strong Asian and US values caused by higher energy numbers.

The December contract price was agreed at $850/tonne CIF (cost, insurance, freight) ARA (Amsterdam, Rotterdam, Antwerp).

($1 = €0.70)

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