FocusHigh benzene squeezes Asian BPA margins

23 May 2008 05:50  [Source: ICIS news]

By Jeremiah Chan

SINGAPORE (ICIS news)--Margins for Asian bis-phenol A (BPA) makers were being increasingly squeezed by the recent surge in crude oil and upstream benzene values, traders and producers said on Friday.

BPA – a key monomer used in the production of polycarbonate and epoxy resins – has suffered from a slowdown in downstream demand in recent months.

With most end-users expecting values  to fall amid an anticipated supply overhang due to scheduled plant expansions in late second quarter to third quarter, regional sellers were finding it increasingly difficult to raise prices.

Weakening global demand due to controversies in the US over the toxicity of BPA used in food container applications also served to dampen buying sentiment.

“We cannot sell BPA above $1,800/tonne CFR (cost and freight) China. Traders and end-users can’t accept higher numbers,” the marketing official of Taiwanese BPA major Nan Ya Plastics Corp said in Mandarin.

He added that the company was considering cutting production rates rather than to continue selling cargoes at a loss.

The spread between benzene and BPA prices – traditionally quoted at a minimum of $600/tonne in order for most producers to make minimal profits – has narrowed to the high-$400s/tonne after benzene recently hit a 12-year high.  

Benzene prices were assessed at $1,320-1,335/tonne FOB (free on board) Korea on Thursday, according to global chemical intelligence service, ICIS pricing.

Coupled with high energy costs and propylene prices surging above the $1,500/tonne CFR NE (northeast) Asia mark, BPA makers were finding it increasingly unprofitable to manufacture and sell material.

“Although buying ideas from most end-users and traders [in China] are below $1,800/tonne [CFR China], suppliers have to increase the selling price,” a BPA trader based in Japan said.

He added that Japanese major Mitsui Chemicals had recently announced a yen (Y) 24/tonne increase to domestic customers due to higher manufacturing costs with effect from July this year.

Other traders agreed, with a Chinese BPA trader saying that regional producers would likely hike their offers by next week due to cost increases.

“If they [BPA producers] are still unable to reach higher prices in China, then there is no way for them to survive,” he said, adding that it would make more sense for BPA manufacturers to stop producing cargoes if they were not able to cover their variable costs.

($1 = Y104.30)

By: Jeremiah Chan
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