Chemical market trends: Mixed views on supplies

03 May 2010 00:00  [Source: ICB]

Many markets report improved availability, while tightness remains in others. US ethylene margins slump, and an earthquake shakes up the PVC market

Spot margins for ethylene in the US collapsed in the week ending April 23, pressured by a large drop in spot values and slightly lower cracker co-product credits.

Spot margins for ethane-sourced ethylene fell to 29.7 cents/lb, a 41% drop from 50 cents/lb the week before.

Margins for naphtha-based ethylene were 8 cents/lb lower, at 21.7 cents/lb in the week ending April 23.

May ethylene traded at 53-54.75 cents/lb, down from April deals done at 70.5-73 cents/lb in the week of April 16.

Market participants attribute the drop to increasing supply. Most crackers are scheduled to be back up and running in May, and more ethylene would then be available.

Demand for polyvinyl chloride (PVC) has become particularly strong in Chile, as it recovers from February's earthquake.

March was an outstanding month for demand because of reconstruction initiatives after the February 27 tremor, according to local sources, one adding that PVC offtake was "spectacular".

Demand for cable and pipe is expected to remain strong for the remainder of the year.

Prices for pipe-grade PVC are at $1,040-1,075/tonne CFR Valparaiso/San Antonio. US offers are the most attractive in Chile and have fallen to $1,050/tonne CFR, down from $1,070-1,080/tonne a few weeks earlier.

US butadiene (BD) contracts are poised to jump by 6% in May to 89 cents/lb.

US contracts usually settle at the lowest price nominated by the four main US producers. Two US producers had nominated 7 cents/lb, with the remaining two announcing initiatives of 5 and 7 cents/lb. The hike is line with what buyers had predicted. Consumers had expected BD to rise in May, but not by the same magnitude as in the previous months, citing easing supplies.

A steady flow of imported BD cargoes into North America has taken pressure off supply, one buyer says.

Imports from Asia alone are likely to total 30,000 tonnes from April to June, the source says, adding that incremental parcels from Brazil and Europe are also helping to take pressure off US supply.

Tightness has pushed BD contracts up by 41% since January, including the expected increase in May.

Asia's abundant benzene supply may shrink over the next few months as regional producers and traders actively look at shipping cargoes to the US and Europe, with the arbitrage window open.

A move by some producers to switch feedstock to LPG from naphtha for petrochemical production would also curb production of the aromatics, they add.

Cutting oversupply would benefit benzene prices in Asia, which have lagged behind gains seen in the US and Europe.

Spot benzene in Asia was hovering at $995-1,010/tonne FOB Korea last Monday, with expectations that it would be stable in the short term, with an upward bias.

Based on benzene prices on April 23, the Asia-US gap was $41-56/tonne, while the Asia-Europe gap was higher, at $135/tonne.

The open arbitrage would see an estimated 50,000-60,000 tonnes of benzene leaving Asian shores for the US in April, and another 40,000-50,000 tonnes in May.

Asian benzene bound for Europe would be around 10,000-15,000 tonnes.

Second-quarter (Q2) contracts for maleic anhydride (MA) in Europe settled up by €200/tonne from Q1, owing to short supply.

Q2 MA contracts settled at a pre-discounted range of €1,670-1,750/tonne FD Northwest Europe (NWE). According to several sources, this equates to €1,300-1,400/tonne on a net basis.

Some buyers agreed a €110-150/tonne hike, but this is not widely confirmed.

Limited availability meant that Q2 contracts were finalized quickly as buyers looked to ensure supply, say sources.

Toluene di-isocyanate (TDI) prices in China have plunged by $180/tonne - or 6% - in six weeks, as supply has flooded the southern part of the country and Hong Kong ahead of the Shanghai World Expo in May.

Transporting dangerous chemicals has been prohibited in Shanghai as China prepares to welcome visitors for the exhibition.

Spot TDI on Friday was at $2,900-2,950/tonne CFR China Main Port (CMP)/Hong Kong, with traders slashing prices to rid themselves of excess cargoes.

The Shanghai Expo, which will run for six months through to October, is turning into a logistical nightmare for most Asian TDI players, say market sources.

By avoiding the Shanghai port, a number of Northeast Asian producers are finding it difficult to secure vessels that would go straight to southern China, causing delays in shipments and causing higher costs.

Asian expandable polystyrene (EPS) sellers have reduced offers in an attempt to attract buyers, although the market is expected to remain soft throughout Q2.

Offers of packaging-grade resins fell by $10-20/tonne to $1,420-1,430/tonne CFR China. Buyers lowered bids to around $1,400/tonne from $1,420/tonne.

"While our prices have come down, buying indications fell in tandem," says one Taiwanese producer.

Sellers attribute the slowdown in buying to the Labor Day holidays in early May.

European Q2 butanediol (BDO) contracts have settled up by €140-160/tonne at €1,645-1,890/tonne FD NWE, largely because of stretched supplies and strong downstream demand. Targets were €150/tonne.

All suppliers confirm that they had largely secured the full amount, with one adding that it had settled some contracts closer to a €200/tonne hike, although these were exceptional.

Another seller agreed Q2 contracts up by €120-150/tonne, but adds that most had been done at the higher end of this range.

Although a US propylene seller has offered to cut May contracts by 6 cents/lb, buyers have predicted that the monomer will fall by twice that amount, citing a plunge in the spot market.

Spot prices dropped sharply in April, reversing months of continued increases, following weaker demand and increased supply.

The softening became clear in the week ending April 23 when refinery grade propylene (RGP) tumbled by 18% between deals as a result of lengthening supply.

Spot RGP for April last traded at 39 cents/lb on April 23, down from 47.75 cents/lb the week before. It began April trading at 58-58.75 cents/lb.

The RGP collapse fueled buyers' expectations of a large May contract drop for US propylene, which became the world's most expensive monomer after prices surged by 53% in the last six months.

One consumer describes the proposed 6 cent/lb reduction for May as "laughable."

By: Andy Brice
+44 20 8652 3214

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