FocusFalling US ethylene prices raise hope of EDC arbitrage to Asia

29 April 2010 09:08  [Source: ICIS news]

By Ng Hun Wei

SINGAPORE (ICIS news)--Plummeting ethylene prices in the US has raised hopes in Asia that the country’s ethylene dichloride (EDC) export flow to the east could be revived, market players said on Thursday.

Spot prices of ethylene in the US were last week assessed at $1,168-1,207/tonne (€887.7-917.2/tonne) delivered (DEL) pipeline, a 25% fall from the week before, data from global chemical intelligence ICIS pricing showed.

The plunge in feedstock ethylene prices was likely to lower the production costs of US EDC producers, which might enable them to explore arbitrage opportunities in Asia, buyers said.

“Spot EDC imports from the US have dried up in recent weeks because of high production costs. Now that feedstock costs are falling, our position is to wait and see if there are cheap US cargoes coming in,” said a northeast Asian EDC buyer.

US EDC imports into China, a key EDC importer in Asia, had been declining since last November, falling 26% to 13,153 tonnes in February this year, latest China Customs data showed. The country imported 100,787 tonnes of EDC from the US in February 2009.

Asian EDC spot prices were last Friday assessed at $520-550/tonne cost and freight (CFR) northeast (NE) Asia while export values from the US were at $450-500/tonne free on board (FOB) US Gulf, according to ICIS pricing data.

Market players estimated the US-to-Asia EDC shipping cost to be around $80/tonne. A 25% drop in the price of ethylene, which makes up by weight around 33% of EDC, could be enough to open the arbitrage window, industry sources said.

An Asian EDC buyer, however, acknowledged that there was no increase in selling interest from US producers yet. A US cargo was currently heard to be offered in the mid-$500s/tonne CFR NE Asia range although this could not be confirmed.

Asian EDC producers and traders were also skeptical that the fall in US ethylene prices would have an immediate impact on Asian markets.

US EDC cargoes produced from the cheaper ethylene feedstock could only arrive in Asia in July at the earliest because of the shipping time involved, they noted. EDC supplies in Asia in the interim period would still be tight, a producer said.

Asian EDC prices also showed little signs of softening at the moment, traders and producers noted.

Cargoes were heard sold at $550/tonne FOB NE Asia or the equivalent of around $570-580/tonne CFR NE Asia while a late-May loading cargo from Latin America was recently heard sold in the high-$400s/tonne FOB basis.

EDC is a feedstock used to produce polyvinyl chloride (PVC).

($1 = €0.76)

For more on EDC visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Ng Hun Wei
+65 6780 4359

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