Asia's problems begin to hit US markets

27 May 1996 00:00  [Source: ICB]

US olefins producers' continuing efforts to lift prices are being thwarted by a weakening Asian market and a fall-off in export opportunities in Europe.

US olefins producers continue to push for price increases for May and June but the momentum appears to be falling off in spite of reports of the US domestic economy showing stronger than expected growth. Weak Asian markets and the end of cracker outages in Europe are limiting exports. Producers are nervous that Asian trade will suffer further if the US/China dispute escalates. The impact of Iraq's return to world oil markets after six years' absence is another wild card - an end to uncertainty may even have a positive impact.

Some word of April ethylene settlement is filtering through but major buyers are still fighting to restrict the rise to 1.5 cent/lb and there has been settlement at that level. May nominations are 1-2 cent/lb hikes with one major settlement claimed at 1 cent/lb. Outages, planned and unplanned, have kept the ethylene market fairly tight. OxyChem suffered a few hiccups over the restart at Corpus Christi while Chevron suffered a short outage at Cedar Bayou. One of the two Lyondell crackers at Channelview came down for a 50-day planned maintenance programme around 15 May. Ethylene spot prices are around 25 cent/lb but under pressure from lower export demand. Buyers' opposition to hikes is fuelled by fears that weakening Asian demand will undermine PE price hikes.

The 1 cent/lb propylene price hike for April went through and nominations for a May increase are unchanged at 1.75-2.00 cent/lb. One major has nominated a further 1 cent hike for June. Agreement is made more difficult by acrylonitrile producers pushing for a larger differential between polymer grade and chemgrade prices to reflect the softer supply situation for chemgrade. Sellers say such an adjustment would be impossible because of the way many polymer grade contracts are written, effectively linking their contract price to chemgrade pricing. Spot numbers have fallen on the back of a steep fall in Asian prices and are talked around 18-19 cent/lb for polymer grade and 15 cent/lb for pipeline sales of chemgrade.

The 2 cent/lb butadiene price hike for May went through taking May prices to 19 cent/lb. Spot deals, mainly Brazilian imports, are currently concluded at the same level with offers now above 19 cent/lb. A 2 cent/lb hike is nominated by one producer for June and with end April inventory showing a 13 160 tonne fall to 63 520 tonne, the market should be tight enough to support this but synthetic rubber markets are weak and US supply is improving.

Benzene nominations for June have been pulled back from the original $1.05/gal to a rollover of May's $1.00/gal. Spot prices had moved up to 98-99 cent/lb but news of a possible agreement between lraq and the UN on the resumption of oil exports led to a softening spot market as benzene followed gasoline and crude prices lower. Settlement on 20 May was followed by limited buying but prices remain 95-96 cent/gal range - barely supporting the $1.00/gal contract nomination. Benzene pricing is currently influenced by a combination of gasoline/crude pricing and supply constraints as HDA's continue idle and maintenance outages at TDPs and one MSTDP keep supply tight.

Toluene prices are tracking around 3-4 cent above octane blend value with deals done around 76-77 cent/gal. Chemical demand is limited but some spot opportunities for gasoline blending continue to cause periodic spikes in pricing. With no sign of any build in gasoline inventory, demand for summer gasoline blending is likely to remain reasonably strong.

Xylene May contracts were agreed at 90 cent/gal, up 8 cent/gal on April. However since then spot prices have been falling rapidly with weak PX demand finally taking its toll. One trader spoke of a spot deal at 75 cent/gal although producers were claiming higher numbers. Capacity added in the US and Japan late last year is a major factor with Asia able to source xylene from Japan.

US prices
	Contract price	Nomination	Spot price
Ethylene	19.75-21.00 cent/lb (March)	+2 cent (April) +1-2 cent (May)	24-25 cent/lb fob USG
Propylene (p)                  (c)	17.75 cent/lb (April) 16.25 cent/lb (April)	+1.75-2.0 cent (May) +1.75-2.0 cent (May)	18-19 cent/lb fob USG 15 cent/lb
Butadiene	19 cent/lb (May)	+2 cent (June)	19 cent/lb cif USG
Benzene	$1.00/gal (May)	+0 cent (June)	95-96 cent/gal fob USG
Toluene	90 cent/gal (May)(a)		76-77 cent/gal fob USG (n)
Xylene	90 cent/gal (May)	na	75-77 cent/gal fob USG
Paraxylene	34.5 cent/lb (Q2)	na	375-400/tonne fob USG
Orthoxylene	17.0 cent/lb (May)	+0 cent/lb (June)	355-375/tonne fob USG
Styrene	32-35 cent/lb (April)*	+2 cent (May)	24.5 cent/lb fob USG
Propylene (p) = polymer grade; (c) = commercial grade; toluene (n) = nitration grade; (a) = TDI grade. Contract price: ethylene/propy lene/butadiene delivered pipeline connection; benzene, orthoxylene, fob US Gulf; styrene ex-works; PX FD. * posted price.

The paraxylene spot market continues to suffer from destocking downstream. Buyers are taking minimum contract levels and spot prices have fallen below $400/tonne with buyers offering $375-380/tonne. Although US domestic PET and fibres demand remains strong the impact of the weak Asian market has sellers accepting there will be a fall in Q3's contract price. Chevron, Amoco and Coastal have cut production runs and Coastal is looking to an early turnaround to correct inventories. Contract ideas for Q3 are for a major downward price revision. Producers would like to restrict the fall to around 26 cent/lb but buyers are talking even lower numbers.

May orthoxylene prices settled at 17 cent/lb with sellers' efforts to raise prices 2 cent/lb eroded to a roll-over of April's figure. A roll-over has been nominated for June but buyers are looking for a 16 cent/lb price in line with current spot numbers on the US Gulf. Weak Asian PA markets are hitting export demand.

Confusion reigns over US styrene pricing with producers giving a wide range of April contract price ideas between 28-36 cent/lb. Producers agree they received a 2-3 cent increase on March. A further 2 cent/lb increase is nominated for May but there appears to be a lot of uncertainty over its success given US styrene prices are well above those in Asia and Europe. The success of May styrene hike is seen as crucial to the success of June PS hikes. Producers can argue with some justification that US markets are short following outages and that ethylene and benzene price hikes justify an increase. The US spot price of 24.5 cent/lb is too high to allow export activity.

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