FocusTight natural gas supply drives up China chemical prices

19 November 2009 09:47  [Source: ICIS news]

By Judith Wang

SHANGHAI (ICIS news)--A shortage of natural gas as China battles an unusually strong winter spell has been pushing up domestic chemical prices this quarter, even as demand has stayed modest, industry sources said on Thursday.

Supplies of natural gas were being diverted for heating purposes, significantly cutting the feedstock available for the production of chemicals such as methanol, melamine and urea, sources said.

The resulting tight supply has led chemical prices to increase, market sources said.

On Thursday, methanol prices rose by CNY150/tonne ($22/tonne) from last Friday to CNY2,180-2,250/tonne ex-tank east China, traders said.

Domestic melamine prices increased by CNY200-300/tonne from late last week to CNY8,200-8,300/tonne, traders said, adding that many producers were unwilling to sell cargoes in anticipation of a further price hike.

“The natural gas-based chemical prices will likely continue to rise in the future on the tight natural gas supply this winter,” a methanol producer in east China said.

The Chinese government regulates the use of natural gas for industrial purposes in the winter season to ensure ample supply for heating purposes.

A number of provinces in China were in short supply of natural gas as the cold weather caused energy consumption to spike, according to media reports.

Consequently, chemical output has declined, with producers either shutting down or cutting operating rates, industry sources said.

Methanol plants in southwestern China have cut their operating rates, with one in Xinjiang province has shut down its methanol plant, local producers said.

Sichuan-based Jianfeng Chemical shut down its 30,000 tonne/year melamine plant from 17 November for two months of maintenance work and will shut down its 520,000 tonne/year urea plant around 20 November, a company source said.

Logistics problems posed by heavy snowfall in most parts of China were also putting pressure on chemical prices, market sources said.

Prices of polyvinyl chloride (PVC) in southern China increased by CNY300-400/tonne from last week due to tight supply, as cargoes from northern China could not be delivered on time, local traders said

“Some shipments have also been delayed to south China [due to] bad weather, deferring the cargo arrivals,” said a methanol producer based in eastern China.

Based on a forecast from China’s National Meteorological Centre, heavy snow is expected to come to an end on 21 November as temperatures in most regions start to rise.

A number of producers and traders expressed concern that prices would start to fall as soon as the transportation problems have been resolved, pushing cargoes into southern China.

($1 = CNY6.83)

Mindy Liu, Emily Zhang and Penny Wang of CBI China contributed to this article.

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