25 March 2009 07:00 [Source: ICIS news]
By Bohan Loh
SINGAPORE (ICIS news)--High feedstock costs and tight supply have fuelled the recent price rebound across China’s petrochemical products, but a fundamental weakness in demand from the end-consumer segment could put a lid on further gains, industry sources said on Wednesday.
Rising crude prices and restocking activities allowed the prices of basic petrochemicals to pick up in ?xml:namespace>
“We have sold good volumes to
Some analysts believe that speculative trading could be one of the reasons for the recent rise in petrochemical prices since domestic demand in China has not really picked up.
“Dwindling local and exports demand has hit the electronics, information technology, automobile and packaging application sectors in the
Local consumption levels have not shown signs of improvement, he added.
With the world economy heading into recession this year, slumping exports have been slowing
“Chinese banks, at the (prodding of the central government), gave out so much in new loans to businesses at the beginning of the year. With easy credit comes speculation,” said Naphat Chantaraserekul, a senior investment analyst with brokerage firm Kim Eng Securities.
The Bank of China, the country’s third largest bank in terms of market capitalisation, said on Tuesday it had extended more than yuan (CNY)300bn ($43.92bn) in new loans since the beginning of the year to 19 March.
“For the near term, demand (for consumer goods) will not rebound so soon,” said Arden Dai, an analyst with research and consultancy firm, Frost & Sullivan.
“The recent tightness in supply is probably due to downstream converters replenishing inventories (after a long time without buying) and a reduction in operating rates of upstream plants,” said Dai.
Production of naphtha may have been affected by a deliberate move by refiners to make more diesel and jet fuel, which offer better margins, said Kim Eng’s Chantaraserekul.
The production margins for diesel and jet fuel have risen to $8/bbl (€5.92/bbl)and $6.7/bbl, respectively, while the spreads for naphtha were just at about $3/bbl, he said.
Chantaraserekul expects jet and diesel spreads to continue improving in the short-term on higher crude prices that could perpetuate naphtha shortage in the region.
“Prices of petrochemicals could continue to rise as naphtha supplies could be shorter than it is now,” he added.
But tight supply can only push prices up to a certain point without support from demand, industry sources said.
“The actual transaction prices for our products are some CNY100-200 lower than what are published on the websites. At the end of the day, buying from most downstream consumers is simply not happening,” said a senior official with Zhejiang Cifu, a major producer of polyester filament yarns and films.
($1 = CNY6.83 / $1 = €0.74)
With additional reporting by Chow Bee Lin, Mahua Chakravarty, Anu Agarwal, Judith Wang and Salmon Lee
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