China's demand for expensive US PP to dwindle sharply in 2010

22 February 2010 07:01  [Source: ICIS news]

By Chow Bee Lin

SINGAPORE (ICIS news)--China looks set to import significantly less volume of US polypropylene (PP) this year as values of the material soared due to high feedstock costs, industry sources said on Monday.

US-made PP had become too expensive for China, they said.

PP is a commodity resin used in a wide variety of applications, including packaging and textiles.

China imported around 493,381 tonnes of homopolymer grade PP in 2009, about four times more than the 117,673 tonnes imported in the preceding year, according to China Customs data.

The fiscal stimulus package of the Chinese government propelled the country’s strong demand for PP, which the US tried to satiate as demand from its domestic market was at a lull last year, industry sources said.

But this year, this trend may not hold as US PP prices surged on the back of tight supply and strong values of feedstock propylene, industry sources said.

US PP injection and yarn grade prices have surged 115% on average from 9 January to 70 US cents/lb in the week ending 19 February, according to ICIS pricing data.

"US PP and propylene supply is tight because the local refineries and crackers are running at below 80% capacity due to high crude values,” said a source from an Asian PP producer.

"PP supply is tight also because US crackers prefer natural gas which is much cheaper than crude now, which means more ethylene than propylene is produced, and hence less feedstock available for PP production,” the source said.

Asian PP is currently priced lower than the US material.

In the US, the benchmark PP injection and yarn grades were assessed at 66-68 US cents/lb ($1,452-1,495/tonne/€1,060-1,091/tonne) FOB (free on board) US Gulf for the week ended 19 February, up 9.8% from four weeks ago, according to global chemical market intelligence service ICIS pricing.

In Asia, injection and yarn grades were assessed at $1,240-1,320/tonne CFR China for the week ended 19 February, according to ICIS pricing.

"With Asia PP hovering around $1,350/tonne CFR (cost and freight) China and the February US propylene contract price tagged around $1,400/tonne, US PP exports are way too expensive for China now,” the Asian PP producer added.

PP producers typically need $150/tonne spread over propylene to make operations viable.

"There are very few firm offers for US PP in the market now, but selling ideas for PP injection and yarn grades are above $1,400/tonne CFR China, and buyers don't accept such levels now,” one of the international traders said.

"Rising US-China freight rate is also making it increasingly difficult to make US export work in China,” he said, estimating the US-China freight at around $80/tonne.

"US-China freight has been rising because the drastic fall in Chinese exports to the US has reduced the number of returning vessels,” he said, adding that he expected the freight rates to rise further.

Tighter US PP supply had also made room for more Asian exports to South America - the traditional market for US suppliers, a South Korean producer said.

"We sold 120 containers of PP injection grade to Brazil, Chile and Peru for March shipment, compared to the monthly average of 40-50 containers for January and February,” the Korean producer said.

A second international trader said he expects US domestic PP prices to correct in April, but added that it was unclear if prices would fall to a level that the Chinese market would consider as competitive.

($1 = €0.73)

For more on PP visit ICIS chemical intelligence
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Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Chow Bee Lin
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