FocusAsia petchems mull price hikes on high oil

03 January 2008 05:24  [Source: ICIS news]

By Jeanne Lim

SINGAPORE (ICIS news)--Asian petrochemical producers’ efforts to raise products prices may meet buyer resistance despite crude values continuing to hit record highs, market players said on Thursday.

Polyolefins producers said they were under pressure to raise resin prices in response to soaring crude values, but some producers were also concerned that polyolefins prices might not rise quickly enough to match the increases.

“We cannot sell injection and yarn grade polypropylene (PP) below $1,450/tonne (€986/tonne) CFR (cost and freight) China now because of the record high crude prices,” a South Korea PP producer said.

“I think the crude prices are too high and this is not good for us because we may not be able to raise PE prices quickly enough to match our rising production costs,” a second South Korea producer said.

NYMEX light sweet crude futures for February delivery closed at $99.62/bbl late Wednesday, up $3.64 on the previous close after reaching a record $100.00/bbl during the session.

Market speculators and investment funds responded to news of civil unrest in Nigeria and Algeria as well as further weakness in the US dollar.

Meanwhile some Asian polyolefins producers said they expected strong resistance from buyers as demand was expected to be weak in January and February due to the Chinese New Year holidays.

“[Asian] producers will raise offer prices but sales will slow down at the end of January because plastics processors [in the key China market] are expected to cut operating rates in February due to the Chinese New Year holidays,” the second South Korean producer said.

“We are checking the market to see how customers will respond to the soaring crude prices,” the first Korean producer said.

Higher crude prices mean increased production costs for most Asian polyolefins plants as they use naphtha as feedstock, and naphtha prices have been rising on the back of soaring crude values.

Producers in the orthoxylene (OX) were also concerned about rising feedstock costs.

“While the $100/bbl was caused by speculators, the fact remains that prices of crude are still above the $90/bbl mark even as of today,” said a Taiwan-based seller, speaking in Mandarin.

“Producers like us need to buy feedstocks like mixed xylenes (MX) so as long as crude futures are at this crazy price, naphtha and all the downstream aromatics prices will eventually have to go up as well. We cannot keep absorbing the rising costs forever.”

Another OX trader from South Korea saw high crude as an opportunity to raise prices.

“Now the buyers will finally understand why I’ve been raising my prices. If they don’t want to buy now, I’ll be able to sell it to them for higher margins later because prices look set to keep going up,” he said.

Not all chemicals producers, however, will be able to increase prices despite higher crude.

For instance, no immediate reaction could be seen in the caprolactam market as discussions remained thin immediately after the year-end holidays.

“Prices are now tied to demand more than anything else,” a trader in the key China market said.

“End-users are still facing cash flow problems after settling their bank loans last month. This situation is compounded by the recent credit tightening in China,” another trader in China said.

Caprolactam, a derivative of benzene, is a key feedstock for nylon 6.

Whether petrochemical producers succeed in raising prices in response to high crude values largely depends on the supply and demand situation in each market, said an analyst with a multinational investment bank who declined to be named.

“The [$100/bbl] price is symbolic. What is the difference between $97/bbl or $100/bbl? [Producers] can’t push prices even if crude prices go up to $110-$120/bbl. That is irrelevant as the situation depends on supply and demand,” the Singapore-based analyst said.

Some refineries, however, could see positive margins in the short term especially in the face of tight supply and high demand, said Kenneth Shin, a South Korea-based chemicals analyst with Woori Securities.

“Higher crude prices are only positive in the short-term for refinery which has upgrading facilities for value-added products. If crude price remains over $100/bbl in the long term, it will hurt demand,” he said.

($1 = €0.68)

Chow Bee Lin, Hong Chou Hui and Wan Hsin Hun contributed to this article.

By: Jeanne Lim
+65 6780 4359

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