Chemical market trends: Markets mainly see uptrend

18 May 2009 00:00  [Source: ICB]

Crude oil values rally. Asian PS sees gains and European spot EDC leaps.Benzene dips after $200/tonne surge. Tire producers in Asia resist SBR hikes


crude oil
Crude traded at a six-month high last Tuesday, with front-month US crude surpassing $59/bbl due to a softer dollar and news that China's crude imports rose in April to the second-highest level ever.

June NYMEX light sweet crude futures traded at $59.32/bbl in the morning, up by 82 cents/bbl from Monday's close. Earlier, the contract had hit a high of $59.68/bbl - a price not seen since November 2008.

Meanwhile, June Brent on London's ICE futures traded at $58.26/bbl, up by 78 cents/bbl. The contract had earlier reached a high of $58.44/bbl, again for the first time since last November.

Chinese trade data shows that its April crude oil imports totaled 16.17m tonnes - equivalent to around 3.93m bbl/day. This was 13.6% higher than a year earlier.

US May propylene contracts have settled 2.5 cents/lb higher, lifted by tight supply, steady demand and higher refinery-grade propylene (RGP) spot prices.

This takes chemical-grade propylene (CGP) contracts to 30 cents/lb and polymer-grade propylene (PGP) to 31.5 cents/lb.

Producers had originally nominated increases of 3 cents/lb for the month.

Second-quarter (Q2) European butanediol (BDO) contracts have fallen by €100-150/tonne from Q1, thanks to continued soft demand. Contracts are reported at €1,350-1,550/tonne FD Northwest Europe (NWE).

Despite the reduction in contract prices, many players report improved sentiment from the previous quarter. This was largely because of the strong gains seen in the Asian market, which would have a firming effect on European prices.

The ailing polybutylene terephthalate (PBT) sector is also said to have picked up in Q2.

glycol ethers
Nominations for price increases for June glycol ethers and oxo-alcohol in the US are more viable than previous initiatives, with buyers saying that the market might not be able to withstand the hikes.

Buyers say that US-based Dow Chemical and Netherlands firm LyondellBasell both nominated hikes, effective June 1. Dow announced an increase of 3-5 cents/lb.

In March, Dow said it was increasing prices on 55 products in its oxygenated solvents portfolio by 4-5 cents/lb from April 1 - including n-butanol (NBA), isobutanol (IBA), 2-ethylhexanol (2-EH) and numerous glycol ethers .

Other producers also issued price increase nominations, but slack demand and ample inventories hampered these initiatives.

styrene butadiene rubber
Negotiations for Q3 Asian styrene butadiene rubber (SBR) contracts may drag on, with downstream tire producers putting up stiff resistance to any hike.

Major SBR producers had proposed a $200-300/tonne increase to $1,400/tonne CFR Northeast (NE) Asia for non-oil grade 1502 SBR because of rising feedstock butadiene (BD) costs and strong Chinese demand in the second quarter.

BD prices had risen by as much as $200/tonne last month, touching $810/tonne CFR NE Asia in late April.

Downstream tire producers, however, are resisting a contract hike, considering the weak global automotive industry.

"We do not expect the global automotive sector to recover in the near term. In light of the current difficult market conditions we are seeking a rollover for the third-quarter contracts," says one tire maker.

Q2 non-oil grade 1502 contracts mostly settled at $1,100-1,200/tonne CFR Asia.

European benzene retreated by $30-50/tonne last Tuesday having surged $200/tonne in 10 days. On May 1, May values were pegged at $580-590/tonne.

By May 11, deals had been done as high as $780/tonne CIF Amsterdam, Rotterdam, Antwerp (ARA).

One producer said that there was clearly limited supply. "Some producers were short as their vessels were delayed, while I also heard of cracker turnarounds," the seller said.

Meanwhile, cracker operating rates remain reduced due to the poor profitability of ethylene. Several crackers are reportedly still running on lighter feedstocks, which has lowered the output of pygas and conseq­uently benzene.

Another player adds that May is already more balanced than previous months, after April had seen ample exports to the Asia-Pacific region. This made it even more difficult to cope with the sudden increase in demand, it says.

Asia polystyrene (PS) prices have reversed a downtrend, thanks to strong gains in energy futures and feedstock styrene values.

Prices of general purpose polystyrene inched back towards the mid-$900s/tonne CFR China in the week ending May 8, having fallen by around 20% from this year's peak of $1,125/tonne in the second half of April.

Similarly, expandable polystyrene (EPS) edged up to $1,050/tonne after shedding 15% of its value last month, because of concerns over domestic Chinese demand.

Strong styrene values, combined with encouraging economic data from the US and China, has bolstered confidence of stronger demand following the Labor Day holiday.

ethylene dichloride
European ethylene dichloride (EDC) spot prices have jumped by $80-90/tonne since April thanks to a tightening market and increased buying interest.

Players speaking in the week ending May 8 said a few trades had been confirmed at $280-300/tonne FOB Western Europe, up from $200-210/tonne in early Q2.

The movement had been expected by some, who reported that cuts in chlorine operating rates had reduced output and subsequently tightened EDC availability.

A trader suggests that the market will continue to tighten following the permanent closure of Ercros' chlor-alkali facility at Palos de la Frontera, Spain.

China's polyolefins market may come under downward pressure in July and August because of new production from domestic sources, from the Middle East, and also from non-traditional sources, such as the US, Europe, Russia and South America.

Fujian Refining and Petrochemical Co's plant in Fujian province in southern China and Petro Rabigh's plant in Saudi Arabia are among new supplies soon to hit the market, capping regional prices, says one Middle East producer.

High prices seen in China over the past few months have been attracting cheaper material from elsewhere, say Chinese traders.

US injection and yarn grade polypropylene (PP) was offered at $1,025/tonne CFR China for June shipment - about $75/tonne lower than Asian product. South American injection- and yarn-grade PP, meanwhile, was offered at $1,000/tonne, while linear low density polyethylene (LLDPE) from the US has been offered at $1,050/tonne, about $100/tonne cheaper than regional products.

By: Andy Brice
+44 20 8652 3214

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