Chemical market trends: Raw material costs take toll

25 January 2010 00:00  [Source: ICB]

Markets bear the brunt of high feedstock costs and producers push for increases. Asian ACN numbers continue climbing, and US PVC sellers announce hikes

Asian vinyl chloride monomer (VCM) cargoes for February delivery are being offered $100/tonne higher than January's settlement because of rising feedstock costs.

Last week, Japanese material was offered at $870/tonne CFR northeast (NE) Asia, compared with January's $770/tonne. The rising cost of feedstock ethylene is blamed for the hike, say sellers. Ethylene values in Asia have leapt by 10% since mid-December 2009 to $1,270-1,320/tonne.

Buyers are skeptical that the price increase is justified. The downstream polyvinyl chloride (PVC) market in China only supports, at most, VCM prices of $800/tonne, says one Chinese vinyls producer and VCM importer.

As US PVC producers issued January contract price hikes, some also revealed a February increase announcement.

From January 1, all US PVC producers are seeking 5 cents/lb, say distributors. At least four major PVC suppliers issued announcements for a further 5 cents/lb in February, buyers add. Another major PVC producer confirms it is considering an increase.

Pipe-grade PVC contracts are at 63-65 cents/lb for December, with general purpose PVC in a 67-69 cents/lb spread.

Some say hefty price rises are supported by higher ethylene costs, but any PVC producer that needs chlorine will also be grappling with high prices for this feedstock.

Chlorine remains within the $390-410/dry short ton highs established between the second quarter (Q2) and Q3 last year.

Supply constraints, strong Chinese demand and rising costs of feedstock propylene have helped to push February spot offers for Asian acrylonitrile (ACN) to $2,000-2,100/tonne CFR Asia - up by more than $200/tonne from mid-December prices.

Several ACN plants in Asia, including Japan's Asahi Kasei, South Korea's Taekwang Industrial and Taiwan's China Petrochemical Development Corp. have limited spot availability because of a heavy turnaround schedule in the first four months of the year.

First-quarter contract prices in Europe's butanediol (BDO) market are expected to increase because of higher feedstock costs and tightening supplies.

Most players are still negotiating settlements, with one producer saying it would be looking for increases of up to €100/tonne from the previous quarter.

"Demand is still healthy," it says, "however, the market is getting tighter due to interruptions in production not only in Europe but in Asia as well, where a lack of coal and natural gas has led to reduced operating rates amongst players."

Another major European supplier agrees: "Asia is currently tight, and US material is short, too. In Europe, what we saw was the sudden drop in temperature overnight cause problems with some plants. The market here is closer to tight than balanced."

The supplier says it completed some initial Q1 settlements at an increase of around €50/tonne, but that the majority had yet to be finalized.

Asia's paraxylene (PX) market turned bearish in the third week of the year, as spot purchases from the purified terephthalic acid (PTA) sector downstream skidded to a halt, owing to large inventories.

Initial expectations that PX prices would remain strong through March are being dashed because of ample volumes, say players.

"Despite all the recent production issues in the Middle East, China and the heavy turnaround schedule in Japan, end-users are not buying anything as they have no immediate requirements for PX," says one source with state-owned producer Sinopec.

PX values were at $1,115-1,125/tonne CFR Taiwan and/or China Main Port (CMP) at the close of business last Monday.

US orthoxylene (OX) sellers have nominated 2-4 cent/lb hikes for February contracts.

ExxonMobil and Flint Hills Resources targeted 50 and 52 cents/lb, respectively. The mid-month contract nominations are up from the January benchmark of 48 cents/lb.

The increased nominations come amid steady pricing in the US Gulf mixed xylenes (MX) spot market, although one OX producer says the lack of spot MX and OX availability could send values up in a hurry.

High feedstock values pushed European styrene acrylonitrile (SAN) prices up by €100-130/tonne in January. This was still shy of producers' hopes for €150-170/tonne hikes to cover the surge in upstream styrene costs.

Compounding grade is at €1,510-1,530/tonne FD NWE, with commercial and specialty grades at €1,650-1,790 and €1,850-2,600/tonne, respectively.

European chlorine output last December fell from the previous month to 733,670 tonnes, says industry body Euro Chlor.

After reaching a three-month high of 814,554 tonnes in November, European average daily chlorine production in December dropped by 12.4% month on month to 23,667 tonnes.

Some players say the drop was expected given the typical slowdown in operating rates for the Christmas and New Year holidays.

Brazil's ethanol prices continued to climb in the week ending January 15, but activity was thin amid limited buyer interest and few spot offers, says research group CEPEA.

CEPEA put hydrous ethanol at reais (R) 1.1892/liter, up by 1.9% from R1.1673/liter a week earlier. Anhydrous ethanol was at R1.2892/liter, up 2.4% from R1.2591/liter.

CEPEA says prices in Brazil are at their highest levels since April 2006.


Buyer resistance could soon put an end to the current polyolefins price spike in the Middle East and South Asia, which has been caused by mounting feedstock costs.

Polyethylene (PE) and polypropylene (PP) prices have surged by 10% in South Asia and 6.5% in the Middle East in a week. Values may dip, with supply improving in the Middle East as new plants ramp up operating rates to 70-80%, from 50-60% late last year.

In India and Pakistan, buyers are watching the key Chinese market before stocking up. Trades have been slow in China ahead of the Lunar New Year holidays in mid-February.

Surging ethylene, propylene and naphtha values caused PE and PP prices in South Asia to increase by up to $130 and $100/tonne, respectively, on January 15 from the previous week. In the Middle East, both rose by $90/tonne. High density polyethylene (HDPE) film jumped to $1,400/tonne CFR in India and the East Mediterranean (East Med), and to $1,320/tonne in Pakistan and the Gulf Cooperation Council (GCC) region. PP raffia rose to $1,340/tonne CFR India, $1,300/tonne CFR Pakistan/East Med and $1,260/tonne CFR GCC.

PLEASE NOTE: As this is a double issue, the key indicator prices will next be published on February 8, 2010.

By: Andy Brice
+44 20 8652 3214

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