FocusChina AF beset by high ACN, weak demand

27 March 2008 10:07  [Source: ICIS news]

By Dolly Wu

SHANGHAI (ICIS news)--China acrylic fibre (AF) operation rates have plunged to 50-60% on high upstream acrylonitrile (ACN) values and weak downstream demand, producers said on Thursday.

ACN prices has soared yuan (CNY) 300-400/tonne ($43-57/tonne) since Monday last week to around yuan (CNY) 15,700-15,800/tonne ex-tank east China on an appreciation in the yuan, high crude values and rising chemical raw material prices, said traders.

During the same period, AF (1.5D stable fibre) prices hiked barely CNY 200/tonne to CNY17,800-18,100/tonne DEL (delivered) east China, they added.

The cost pressures have forced many AF producers to slash output.

“We have already cut operation to 60% while even selling AF at a loss as a result of high feedstock costs and downstream depression,” said Mr Zhao from the sales department of Qinhuangdao Acrylic Fiber.

“We lifted our AF ex-works north China price by CNY100/tonne to CNY17,600/tonne at the middle of March after its price gap with ACN narrowed to an extent that we couldn’t make profits,” he added.

Average AF operating rates in China will reduce more than 20 percentage points in the middle of the year from 90% as capacity growth outpaces demand increase, said Mr Li, manager of Jihua Group sales centre.

He added that feedstock ACN consumption will also drop to 65,000 tonnes/year, from 75,000 tonnes/year in 2007 and 85,000 tonnes/year in 2006.

“As soaring oil and ACN prices further squeezed out our profits, we found it hard to cope,” said Liu, Vice manager of Shanghai Haixin Chemical.

"We opted to slow down our operation rate by 5-10 percentage points from 90% in 2007 to balance the situation."

Other producers also said they will reduce output if ACN prices continue to go up.

On the other hand, China AF will face challenges in terms of quality and prices from other countries, especially from surrounding regions.

“Increasing labour costs and the yuan's appreciation made some foreign investors to choose India,” a producer said.

Increasing demand on polyester staple fibre (PSF) and polypropylene (PP) fibre, both AF substitutes, will hurt Chinese AF because of price advantage and environmental protection moves.

Downstream textile factories often seek other lower-priced swap materials to offset squeezed margins.

“We have to cancel some orders on eroded margins,” a producer from Zhejiang Tonglu Xinxin Textile Factory told ICIS news.

“It is very difficult for small textile companies like ours to survive in the competitive market, especially for exports due to rising AF prices and CNY appreciation."

“Compared with last year, our production is not good. However, we have to buy some AF material as it has irreplaceable advantages and the peak season will come in next month," he said.

Another trader added: “I think domestic factories should add new technologies in AF so that it is more competitive in the world market.”

($1 = CNY 7.03)

For more on ACN visit ICIS chemical intelligence. Judith Wang contributed to this article

By: Dolly Wu
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