Chemical market trends: Holiday lull to dent demand

15 February 2010 00:00  [Source: ICB]

European first-quarter (Q1) butanediol (BDO) contracts have climbed €50-80/tonne from the previous quarter, largely because of higher feedstock costs. Contracts are at €1,485-1,750/tonne FD Northwest Europe (NWE).

"Our average increase was around €60/tonne, although some smaller contracts were settled closer to €100/tonne," says one major European producer, adding that the increases seen upstream were key to the hikes.

One buyer adds that the negotiations for Q1 contracts were tough, with disagreements regarding market conditions.

"February saw raw materials go up again," says the buyer. "But not to the same extent as some of the increases pushed for by sellers. The situation in Europe is not tight; the issue of limited availability was mainly in the US."

Buyers and sellers agree that demand is improving, although opinions differ as to how sustainable the current upswing is.

Spot prices for isobutanol (IBA) and n-butanol (NBA) climbed by €60/tonne in the week ending February 5 in Europe.

Several factors prompted spot prices to climb. Chief among them was the €85/tonne February contract increase of propylene upstream and the tightness of its supply, which also affected oxo-alcohols availability.

Continued demand from Asia and rising prices also provided support to the upward price movement seen in Europe.

"Export demand is still there, requests are still coming in," says a European supplier.

IBA and NBA spot prices are heard at €920-940/tonne FD NWE.

Tightness in the European bisphenol A (BPA) market is pushing up February price ideas.

A buoyant Asian BPA sector has been pulling material from Europe and Russia since December 2009, and has prevented producers in the region from shipping cargo to Europe.

Seasonal shutdowns over the Christmas holidays also put pressure on availability, as buyer interest remained healthy.

As a result, sources expect February contracts to see a sizable increase from January, which were at €1,100-1,220/tonne FD NWE.

US paraxylene (PX) contracts for February settled down by 1.75 cents/lb from January in the wake of lower pricing in Asia.

Material on US Gulf (USG) DEL terms will be priced at 52 cents/lb, compared with 53.75 cents/lb in January.

The February contract came on the heels of a lower, but fractured, Asian Contract Price (ACP), according to a US contract buyer.

North American buyers use the ACP as a bargaining chip in negotiations. If the US benchmark comes in higher than Asian prices, imports would become the purchase of choice, say buyers.

The 3% fall in the US price marks the first decline in the monthly benchmark since prices nosedived in October 2009.

The February ACP was also down by 3% at $1,055/tonne CFR Asia.

Asia's toluene demand will remain weak for the next week because of the Lunar New Year holidays and volatility in crude futures.

Trading of toluene would be limited as February is a shorter month and countries such as China, Taiwan, Singapore and Malaysia would be closed for Lunar New Year celebrations, they add.

Local and regional traders say toluene demand from China, Asia's largest market, would remain moderate because of the holidays, which start mid-February. Traders say high inventories in Eastern China, an estimated 120,000 tonnes, would limit imports.

Domestic market prices last Monday were reported at yuan (CNY) 7,100/tonne ($1,040/tonne) ex-tank, CNY100/tonne lower than the previous Friday. Prices in Asia were at $850-865/tonne FOB Korea on Monday.

European February phthalic anhydride (PA) contracts have settled up €30/tonne following a similar increase for the feedstock orthoxylene (OX) contract.

"The short-term objective was to transfer the OX increase," says one producer.

Freely-negotiated February PA contracts settled at €945-1,040/tonne FD NWE for liquid, and €855-900/tonne for flake.

One producer says it settled liquid contracts at €920/tonne, but agreed that contract prices had risen by €30/tonne from January. Contracts settled at €920/tonne were not reported by the majority of the market.

PA buyers and sellers confirm their move away from freely-negotiated contracts and towards formula-based settlements following a difficult trading year in 2009.

Most contracts are now being settled based on the price of OX plus a margin, which is negotiated annually, say players.

Europe's February OX contract was €720/tonne, up by €30/tonne from January.

Average operating rates in the key Chinese expandable polystyrene (EPS) sector could fall below 30% during the Lunar New Year holidays, according to producers.

Major manufacturers in China plan to idle their facilities - common practice each year - for seven to 10 days. Operating rates of EPS in China averaged 50-55% in January, they add.

Loyal Group and Wuxi Xingda Foam Plastics - two of China's largest producers - each with a capacity of over 800,000 tonnes/year, planned to shut most of their facilities across the mainland toward the end of last week.


Asian styrene prices are likely to come under pressure in the second quarter (Q2), with more than 1m tonnes of additional supply due to come on stream in China and the Middle East later this year.

"With additional supply coming to China and the Middle East [by the first half of 2010], Asian prices could be under pressure in the second quarter, unless demand in the downstream styrenic resins sector strengthens," says a trader.

In the Middle East, The Kuwait Styrene Co. started its 450,000 tonne/year unit late last year. In Iran, Pars Petrochemical is believed to have started its 600,000 tonne/year unit in January. End-users in Asia say they expect to receive their term cargoes some time in April, barring any delays.

In the second half of 2009, a number of facilities in China came on line; several more are to start up in the first half of this year.

Styrene prices stood at $1,290/tonne CFR China on February 9.

By: Andy Brice
+44 20 8652 3214

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