FocusTight supply, high PO cost to sustain China polyols price uptrend

By Ong Sheau Ling

SINGAPORE (ICIS news)--Prices of flexible slabstocks polyether polyols in China may surge further after jumping nearly 10% this quarter, due to tight supply and strong values of feedstock propylene oxide (PO), market players said on Thursday.

Discussions for March-arrival bulk spot cargoes were at $1,800-1,850/tonne (€1,314-1,351/tonne) DEL (delivered) China this week, up $170/tonne from the start of the year, with another $100/tonne increase likely in April, deterring buyers from downstream foam sector, they added.

Polyols is used as one of the raw material for manufacturing foam that is applied in the mattress and upholstery sectors.

Foam makers should have started buying in large volumes this month in preparation for the traditional peak production season from April to June, said a key producer in China.

“[But] we are not seeing this, as buyers deemed the current price level as too high,” he said.

“Unless prices taper off, it is hard for us to buy more volumes,” said a buyer based in eastern China said.

The tight supply conditions, however, would likely prevail for another quarter and keep prices of polyols strong. Increased buying would just push the prices higher, market players said.

“Regardless [whether it is] imports or local flexible polyols, in China, stocks are limited,” a buyer based in south China said in Mandarin.

A two-month shutdown at the polyols facility of key producer – CNOOC and Shell Petrochemicals Co (CSPC) in Huizhou, China was partly responsible for the supply tightness in the local market.

Rising feedstock costs was also nudging up polyols prices in China despite the absence of demand, industry sources said.

PO prices have risen nearly 9% from end February to yuan (CNY) 13,800-14,500/tonne ($2,020-2,123/tonne) this week, keeping the gap with downstream polyols prices at CNY800-1000/tonne, industry sources said.

Polyols should be priced at least CNY800/tonne higher than PO for producers to break even, prompting them to enforce strict price discipline, industry players said.

“Particularly in southern China, we can see both domestic and imported prices jumping faster than other regions [due to tight supply],” a local trader said in Mandarin.

Spot prices for bulk flexible slackstocks in southern China gained 4% to CNY15,400-15,600/tonne DEL, with offers quoted at CNY16,000/tonne DEL. Prices firmed 2.7% to CNY15,000-15,400/tonne DEL in eastern China and rose 2% rise in northern China, based on data from global chemical market intelligence service, ICIS pricing.

But the Chinese polyols domestic prices were still lagging behind the US and European values, market sources said, adding that Asian producers were by-passing selling to China in recent months as they preferred to ship material to more lucrative markets in the West.

Cutbacks in US shipments further capped the flow of deep-sea polyols cargoes for March arrival into China, said a key Asian producer.

“We have little cargoes to sell in March, and we have no idea whether we will be allocated with more cargoes in April because the upstream propylene cost in the US remained high. Moreover, US polyols market is more profitable,” said a US producer.

Supply was also tight in Europe, partly due to the force majeure on Shell Chemical’s ethylene (C2), propylene (C3) shipments from Moerdijk in the Netherlands that limited the production of polyols feedstock PO.

Spanish producer Repsol, meanwhile, had indefinitely idled its Puertollano facility that can produce 70,000 tonnes/year of PO and 160,000 tonnes/year of styrene monomer (SM), further curbing supply in this region.

“As a seller, we would rather cater to the more profitable European market than China,” said a key Asian supplier said.

($1 = €0.73 / $1 = CNY6.83)

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