OUTLOOK '09: Asian BPA sellers face challenging year

06 January 2009 06:21  [Source: ICIS news]

By Jeremiah Chan

SINGAPORE (ICIS news)--The Asian bisphenol A (BPA) market will continue to be hit hard by the turmoil in the global financial markets as downstream demand from epoxy resins and polycarbonate (PC) industries are seeing little upside unless the economy picks up, market sources said on Tuesday.

“I don’t see BPA picking up at least for the next six months,” one trader based in Shanghai said in Mandarin, echoing the sentiment felt across the industry as spot prices fell dramatically. December 2008 BPA values were about 40% lower compared to the peak in July.

The volatility in upstream benzene/propylene markets was cited by some as the reason for the plunging prices but several traders pointed that the price collapse had long been overdue as a surge in additional BPA production capacity starting the second half of 2008 quickly skewed demand-supply fundamentals.

Buying interest in BPA practically skidded to a halt due to the seasonal weakness in demand from PC and epoxy resin industries towards the end of the year, exacerbated by the recessionary fears and turmoil in the global financial markets.

Although new epoxy resin and PC production facilities came on stream in 2008, the economic downturn and intense competition have squeezed companies’ margins, which forced producers to lower production rates or prolong plant shutdowns.

BPA has also suffered plenty of negative publicity over the past year, with reported health risks stemming from BPA exposure, prompting bans on the use of the chemical in food container applications in select countries like Canada.

Several regional BPA producers have slashed operating rates to cut down growing inventories of high cost material as end-users either deferred their purchases or defaulted on contracted volumes.

“We have to run our plant at minimal operation rates, because nobody wants to buy BPA,” the marketing official of a South Korean BPA major lamented, adding that most BPA manufacturers had to endure losses in recent months as downstream prices plummeted in the wake of lacklustre demand.

Unfortunately, the reduced production rates did little to boost buying sentiment towards the end of the year. There were expectations that prices have yet to bottom with additional regional supply coming from Sinopec-Mitsui’s new joint-venture 100,000 tonne/year plant, which was started up in December 2008.

Additionally, traders and end-users surveyed pointed out that even rebounding upstream values would do little to underpin BPA prices if demand continued to falter.

“We don’t care what their [BPA manufacturers’ production] cost price is. If the price is not right, then we are not going to buy,” the procurement manager of a China-based epoxy resin plant said in Mandarin, adding that most epoxy resin plants in China were running at 50-60%.

This year could also see new trade dynamics due to a free trade agreement (FTA) announced between China and ASEAN (Association of Southeast Asian Nations)-member countries. Under the new ruling, bisphenol-A (BPA) exports from ASEAN would be tariff-free.

There are two major BPA producers in ASEAN – Bayer which runs a 160,000 tonne/year plant in Thailand, and Mitsui Chemicals, which operates a 230,000 tonne/year plant in Singapore.

While market sources said that the new ruling would render BPA from these countries more competitive than other traditional Russian and northeast Asian sellers to China, one company official pointed out that they were not in a hurry to offload cargoes over to the huge Chinese market.

Producers will prefer to await stability “considering the current lousy demand (for BPA)” before considering any major changes to their sales strategies, he said.

Key Asian sellers of BPA include Nan Ya Plastics, Mitsui Chemicals, LG Chem, and Kumho P&B.

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By: Jeremiah Chan
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