Chemical market trends: Upstream costs boost prices

26 October 2009 00:00  [Source: ICB]

Many players report price hikes, driven by higher feedstock values. However, Asian EDC slumps and European PP buyers expect prices to slide soon

Spot ethylene numbers in the US leapt early last week, lifted by a jump in feedstock ethane prices.

October ethylene traded at 32 cents/lb, up from 28.25 and 28.62 cents/lb the previous Friday. Mont Belvieu ethane traded at 58.75-60.37 cents/gal last Tuesday, up from 54 cents/gal the Friday before.

Ethylene bid/offers for November are just under 30 cents/lb.

The sharp increase in monomer prices coincided with the first drop in crude oil in the previous eight days.

Crude prices fell by $1.21/bbl to $78.40/bbl, having hit a 12-month high of $80.05/bbl in overnight trading.

ethylene dichloride
Asian ethylene dichloride (EDC) prices have dropped to a five-month low, owing to sluggish demand and unexpected selling interest.

Prices of northeast Asian exports were heard at around $320-350/tonne CFR NE Asia on Friday, October 16 - marking a 30% decline over the past two months.

Deals have been heard done at lower levels. Chinese buyers are said to have secured material at $315/tonne.

Sluggish demand in EDC's downstream polyvinyl chloride (PVC) market and softening values of feedstock ethylene dragged down prices, say buyers.

China, a major EDC importer, had turned into a net exporter of the material in July and August, attesting to how bad market conditions have been.

Unexpected EDC supplies also contributed to the downward pressure on prices.

European polypropylene (PP) buyers are buying as little as possible in expectation that prices will slide further in November.

Producers are doing their best to limit price erosion to the €28/tonne drop in the October propylene contract, which settled at €750/tonne Northwest Europe FD (NWE).

However, buyers report settled business €40-50/tonne below September pricing, leaving net homopolymer PP prices in the mid-€900s/tonne.

There are widespread expectations for a lower propylene monomer contract in November, which would inevitably lead to lower PP prices.

Hopes for lower propylene prices next month are being tempered by a spike in crude oil and naphtha values, although PP buyers are still buying minimal volumes.

European October acrylonitrile-butadiene-styrene (ABS) contracts have settled up by €40/tonne because of stronger butadiene (BD) and acrylonitrile (ACN) values upstream.

However, manufacturers had originally been looking for larger increases. One selling source says that it had initially been looking for €75-100/tonne hikes.

Buyers have put the more modest price rise down to a second successive fall for styrene's contract settlement.

Compounding grade ABS is pegged at €1,500-1,530/tonne FD NWE, injection molding natural grade at €1,510-1,530/tonne and extrusion grade at €1,520-1,530/tonne.

purified terephthalic acid
Spot purified terephthalic acid (PTA) in China jumped by nearly 10% after the country's eight-day National holidays. This could continue to spike on the back of crude oil's strong rally.

Spot discussions were pegged at $852-858/tonne CFR China Main Port last Monday, $70-72/tonne higher than in late September - defying expectations that values would weaken.

Prior to China's October holidays, market players were resigned to the idea that prices of the fiber intermediate would crash.

As a result, buyers opted to keep their PTA inventories low.

When the Chinese market reopened on October 9, the dearth of spot cargoes, along with strong crude oil prices, provided impetus for the price rise.

US orthoxylene (OX) producers have nominated hikes of 5.5-6.5 cents/lb for November contracts versus October, following an upturn in mixed xylenes (MX) spot prices.

ExxonMobil is targeting 43 cents/lb, with Flint Hills Resources pushing for 44 cents/lb - up from October's 37.5 cents/lb FOB US Gulf settlement.

Spot MX was talked around 5-15 cents/gal higher on October 16 at $2.45-2.55/gal.

Meanwhile, China's Sinopec has revised its October list prices for OX yuan (CNY) 300/tonne ($43.92/tonne) higher, encouraged by strengthening energy values and increases seen for coproduct paraxylene (PX) spot numbers. Its initial October offer was for a rollover from September at CNY6,800-6,900/tonne DEL.

Firmer domestic prices have also encouraged imports and spot offers in the key Chinese OX market to climb to $900/tonne CFR in the week ending October 16. However, few deals have been reported.

PX prices, meanwhile, had risen by $55/tonne from the previous week to settle at $920-930/tonne CFR China Main Port.

titanium dioxide
Fourth-quarter (Q4) titanium dioxide contracts in Europe have increased by €30/tonne to date in October because of shorter supply and a slight pick-up in demand.

This means domestic market prices are trading at €2,130-2,300/tonne FD NWE.

"There are not many customers who have managed to avoid the increase, although some negotiations are not settled yet," says one supplier. "Most producers have gone out with a total increase of €150/tonne [spread across the Q3 and Q4] and we are adamant that the full amount will be passed through."

Although they acknowledge that the pressure on prices is strong, many buyers doubt producers' ability to reach their €150/tonne target before the end of the year. "They [producers] may be able to achieve a total increase of €70/tonne in the fourth quarter, but the full €150/tonne is extremely bullish given that prices have only slipped €80/tonne since the middle of last year," says a consumer.

Asian butadiene (BD) appears to have bottomed out as rising crude values have stemmed its decline. This comes despite earlier expectations that the downtrend would continue into October, say traders.

US crude futures climbed above $80/bbl last week, bolstering sentiment and lifting selling indications, with BD suppliers unwilling to sell below $1,400/tonne CFR NE Asia despite strong resistance from buyers. Buyers are holding out for $50/tonne below the price sought by sellers at $1,350/tonne.

A stand-off between buyers and sellers has therefore emerged, with both parties unwilling to move from their respective positions, the traders add.

However, downstream synthetic rubber producers say they have no appetite for spot material as their plants are shut for maintenance or are running at reduced rates.

Many had been expecting BD to fall to $1,200/tonne by the end of October as supply outstripped demand following the September start-up of three new plants in China.

By: Andy Brice
+44 20 8652 3214

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