FocusAsia C3 at near 16-yr high on tight supply

14 April 2008 05:28  [Source: ICIS news]

By Kew Jia Hui

SINGAPORE (ICIS news)--Asian propylene prices are at their highest in almost 16 years as tight spot availability for May-loading cargoes leave interested buyers with little choice but to accept higher numbers, market sources said on Monday.

Propylene prices surged $90-100/tonne over the last week to $1,350-1,400/tonne (€860-893/tonne) CFR (cost and freight) Northeast Asia.

However, further price rises may not be as spectacular as several end-users were resistant to numbers above the $1,400/tonne mark.

“Not all downstream sectors [of propylene] can support prices at these levels,” a buyer said, citing persistent soft sentiment in the major derivative polypropylene (PP) market and thin profit margins for propylene oxide (PO).

“Prices of imported [propylene] cargoes are not likely to come down but it is difficult to pass on the large hikes in feedstock costs and in this case, we would just reduce our operation rates,” said an eastern China-based PO maker in Mandarin.

Despite resistance from some end-users, other potential buyers acknowledged that with China in a net-short position for propylene, purchasing some imported material at high prices was inevitable.

“Prices are high at the moment, but there is nothing we can do. Selling indications from the traders are above $1,400/tonne CFR China; we have to bid around these levels in order to secure a cargo,” said an acrylic acid and esters producer in Mandarin.

Propylene spot supply is set to be tight in April and May as producers reduced export quantities due to low cracker operation rates. Cracker operation rates had been cut since early this year as continually high feedstock naphtha costs severely eroded their margins.

Naphtha costs hit fresh record high levels last Friday at $931.00/tonne (€596/tonne) CFR (cost-and-freight) Japan, largely due to crude’s record-breaking rally.

Ongoing turnarounds at some plants exacerbated the tight supply situation. Korean crackers, KPIC and Lotte Daesan and Japanese crackers Tosoh and Sanyo were currently shut for scheduled maintenance.

The successful startup of Formosa’s Ningbo PP plant added to the supply squeeze. Formosa, currently one of the major exporters of C3, would now channel its cargoes to captive usage and has no spare volumes for exports for May. 

The shortage in material in northeast Asia had also affected price discussions in southeast Asia as traders made no move to offer cargoes, saying that they had not been able to secure spot cargoes for May due to the limited availability.

“Moreover, with the current record-high prices in northeast Asia, shipping a cargo down to southeast Asia region would mean offers will be at the very least $1,450/tonne CFR SE Asia,” said a trader.

He added that there were no buyers at these levels.

“We do not make firm offers as the buy-sell gap is just too great. There is no point in discussing bringing in northeast [Asian] cargo when the buyer is not willing to pay well above $1,400/tonne CFR SE Asia,” added another trader.

($1 = €0.64)

By: Kew Jia Hui
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