FocusEnergy prices add to China petchem woes

01 July 2008 05:36  [Source: ICIS news]

By Judith Wang

 

SHANGHAI (ICIS news)—The Chinese petrochemical industry is facing increased cost pressure following the implementation of a domestic fuel price hike on 20 June and a price hike in electricity from today, industry players said Tuesday.

 

“We already face pressure from feedstock costs, now [other] things are adding to the costs, we’re feeling [the heat],” said the boss of a plasticiser plant in Ningbo in eastern China.

 

The National Development and Reform Commission (NDRC), China’s chief economic planning body, announced the rise in prices for gasoline and diesel by yuan (CNY)1,000/tonne ($144.9) and the price for aviation kerosene by CNY1,500/tonne from 20 June.

 

In addition, with effect from 1 July, electricity prices ware also raised by CNY0.025/kilowatt.

 

Due to the jump in fuel prices, some logistics companies decided to transfer the costs to their customers by hiking transportation fees from this month.

 

“Starting today, logistics companies will increase transportation costs by 10-20% and [consumers] will have to pay CNY20-30/tonne more than before, on the whole,” said a phenol buyer based in Jiangsu.

 

“We understand that the costs of transportation are rising, but we also hope that the increase will not be too much,” he added.

 

“Now we have to pay at least 20% more fees to drivers [from here] to Yangshan port,” a source from Shanghai Jixian Logistics Company in northeastern Shanghai.

 

The hikes in transport costs had prompted some buyers to seek cheaper alternatives such as train, but most petrochemical companies were forced to stick to their existing logistical arrangements.

 

One synthetic rubber trader said the availability of train wagons was tight, and has not proved to be a viable alternative to vessels and trucks, “so we do not have many choices”.

 

Meanwhile, the rising cost of electricity was also hurting petrochemical companies.

 

“Compared to fuels hike, the electricity increase has small impact on our production. However, any price hike is a terrible news for us,” another synthetic rubber producer said.

 

And for downstream, export-oriented textile makers, the spikes in fuel and electricity costs were adding pepper to the wounds of these players already hard-hit by an appreciating yuan and seemingly incessant rise to labour and raw materials costs, a Zhejiang trader said in eastern China.

 

“Prices of PTA rose around by yuan (CNY) 2,000/tonne to CNY9,700/tonne ex-warehouse(EXWH) east China from April to early June,” a polyester buyer, lamenting about his squeezed margins. PTA is purified terephthalic acid and a major feedstock for polyester production.

 

“Rising oil has resulted in skyrocketing feedstock butadiene (BD) and styrene prices, said a producer of styrene butadiene rubber (SBR). BD has soared by CNY2,000/tonne to CNY21,500/tonne since early June while styrene rose nearly CNY2,000/tonne in May.

 

And for the plastics sector, PE prices had jumped to CNY15,500-18,100/tonne ($2,259-2,638/tonne) on in mid-June from CNY14,050-15,300/tonne on 1 June, while PP prices spiked to CNY16,000-17,800/tonne from CNY14,500-15,300/tonne during the same period.

 

“Our profit margins were very small to begin with, so the rising feedstock costs, and all the other costs, are making it more and more a struggle for us,” a plastic bag producer said.

 

And the fact remained that not every petrochemical producer was able to pass on these costs by simply lifting prices. For example, SBR prices stagnated while feedstock costs jumped, due to weak demand from the tyre industry, the SBR producer said.

 

Some polyester and plastic converters also cited a similar scenario.

 

“Facing all the increase in costs, many producers in Shaoxing [in Zhejiang] said they had no choice but to lift their prices this month,” a trader said, who added that so far, buyers had yet to accept such increases.

 

 

Jessia Shen and Amy Tong of CBI contributed to this article.

By: Judith Wang
+65 6780 4359

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