FocusNE Asian ethylene falls under $900/tonne to three-month lows

By Peh Soo Hwee

SINGAPORE (ICIS news)--Northeast Asian ethylene spot prices fell below the psychological barrier of $900/tonne (€612/tonne) to three-month lows on Friday as demand from China weakened amid ample regional supplies, industry players said.

Concerns over further declines in key ethylene derivatives also shook the market, leading some traders to trim offers for the monomer by more than $50/tonne this week, they added.

The polyethylene (PE) market held up ethylene prices for most of the year.

A regional 2,300-3,000 tonne ethylene spot cargo for first-half October arrival into Taiwan was heard sold at $880-890/tonne (€598-605/tonne) CFR (cost and freight). These were levels not seen since late June 2009, according to data from global chemical market intelligence service ICIS pricing.

Discussions for high-density PE film grade into China also fell $60/tonne week-on-week to around $1,200/tonne CFR due to poor buying interest and expectations of new supplies from China and the Middle East.

“There is a lot of (ethylene) surplus in the northeast and no demand from China,” said an olefins trader in Japan.

The start-up of Fujian Petrochemical’s new 800,000 tonne/year naphtha cracker in Quanzhou, southern China last month and the high operating rates of 90-100% at China's crackers had capped demand from the region’s largest importer of ethylene.

China imported 721,204 tonnes of the monomer in 2008 and looks set to maintain the same level this year due to a strong first half, market sources said.

The lack of spot demand from China has left traders with limited outlets for sale, at a time when Japan has some spot cargo surplus due to derivative plant turnarounds in September-October and high cracker run rates of close to 100% this month, they said.

“Derivative demand is decreasing in Japan and China, and sentiment has changed,” said another olefins trader.

“There should be more ethylene to sell from Japan (for October loading) compared with September,” he added.

Japanese producers may come under pressure to cut cracker rates in the fourth quarter – bringing an end to five months of high run rates – as margins were being squeezed by firm naphtha feedstock values and weakening olefins prices, including for propylene, which fell below $1,000/tonne CFR NE Asia this week.

“Cracker operators in Japan are now studying whether to reduce operating rates as it is difficult to maintain full operations,” a Japanese producer said.

Other producers in northeast Asia were also taking steps to pare down ethylene inventories due to uncertainty over the outlook for the fourth quarter, market players said.

A 5,500 tonne ethylene cargo for loading in the first half of October to Indonesia was heard sold at $920-930/tonne FOB (free on board) NE Asia during the week, bringing the CFR equivalent price to slightly above $1,000/tonne, they added. This could not be confirmed with the seller.

The north-south arbitrage had opened up in late August due to the wide gap of around $100/tonne between the two regions.

Ethylene had risen sharply in southeast Asia partly because of tight supply from Iran – a key supplier to the region. The supply shortfall had been partially filled in recent weeks by aggressive sales from Asian producers that were lured by prices hitting a high of $1,100/tonne CFR SE Asia in late August.

Discussion levels, however, have started to decline this month due to weakening PE markets, which was fuelling expectations that ethylene prices would come under further pressure.

October offers/selling ideas fell $30/tonne this week to $1,050-1,060/tonne CFR SE Asia but were countered by buying ideas at $1,000-1,020/tonne CFR SE Asia, traders said.

With additional reporting by Chow Bee Lin

($1 = €0.68)

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