Chemical market trends: Supply/demand hits pricing

28 June 2010 00:00  [Source: ICB]

Asian BD, capro and TDI markets brace for further price declines. Brazilian ethanol ends nine-week downtrend. Cracker outage boosts US ethylene values

US ethylene prices jumped by 10% last Tuesday after news of a cracker outage the day before. June ethylene traded at 34.25 cents/lb, up from a Monday deal at 31 cents/lb.

Players point to reports on Monday of an outage at US chemical company Chevron Phillips Chemical's cracker in Port Arthur, Texas, as the key driver behind the spot increase. The company had shut down the unit over the weekend after a disruption in the site's steam supply late the previous Friday.

Chevron Phillips has not said when the 803,000 tonne/year cracker will restart.

Epichlorohydrin (ECH) contracts in Europe are reported up by €50/tonne because of limited supply. One buyer says it had negotiated a rollover, although this is unconfirmed. The majority of customers accepted plus €50/tonne for June. This took June ECH to €1,750-1,850/tonne FD NWE.

Manufacturers say nobody has any product to offer beyond already contracted material, owing to propylene tightness upstream and a lack of imported material.

Observers hope that flat prices in China will relieve the situation, although the weak euro versus the dollar, high shipping costs and long lead times mean this is unlikely.

Prices of butadiene (BD) in Asia appear likely to fall further in July, thanks to concerns over weak demand and surplus material, which has spurred Chinese producers to ship more BD abroad, say traders.

Spot prices tumbled by $70-80/tonne in the week ending June 18, to $1,920-1,950/tonne CFR Northeast (NE) Asia, following the start-up of China's Zhenhai Refining and Chemical Co's new 1m tonne/year naphtha cracker in Ningbo on June 12.

Meanwhile, in the US, a BD producer has nominated an increase of 5 cents/lb for July contracts, because of continued tight supply. Contracts settled at 92 cents/lb in June.

Two US buyers predict that contracts will rise, but not by the magnitude proposed.

BD looks likely to rise by 3 cents/lb in July, with prices flat in August, says one of the buyers, citing softening in US spot prices thanks to pressure from falling Asian values.

Asian caprolactam (capro) prices are set to decline in June and July, after spot values tumbled to near three-month lows in the week ending June 18, in the midst of continued destocking in the market.

Spot prices in NE Asia fell by 7-8% to $2,500-2,560/tonne on June 16 from May 12, when it reached a record high of $2,720-2,760/tonne CFR NE Asia.

A major sell-off of some petrochemical products is underway and causing prices to fall, thanks to concerns that Europe's debt crisis could derail global economic recovery.

Capro prices in Asia have been further weakened because of panic selling in China and Taiwan, after traders slashed their offers by more than $100/tonne.

Prices of the material in Taiwan and China fell by 8-12% to $2,400-2,550/tonne over this same period.

Spot toluene diisocyanate (TDI) prices in China have plunged by almost 9% in June and the decline looks likely to continue because of a lack of buying interest from the end-application foam market.

Spot TDI was at $2,550-2,600/tonne CFR China Main Port (CMP)/Hong Kong on June 16, down $150-180/tonne from the previous week.

Buyers are adopting a wait-and-see stance as they expect prices to fall further, says one NE Asian maker. Several producers say they are planning to cut the operating rates to avoid a rise in stock levels.

Spot numbers have fallen since mid-March from $3,100-3,180/tonne CFR CMP/Hong Kong, as the lull season in the downstream foam segment came earlier than expected and because of logistical issues before the Shanghai World Expo in May.

Japanese paraxylene (PX) producers - Nippon Oil and Idemitsu Kosan - have proposed a $60-90/tonne hike for July contracts.

Idemitsu Kosan proposed a July Asia Contract Price (ACP) of $1,030/tonne CFR Asia, while Nippon Oil is said to have nominated $1,000/tonne. The Idemitsu Kosan source attributes this to climbing naphtha values and firming crude futures. The May ACP settled at $940/tonne.

By last Wednesday, there had not been a nomination reported from ExxonMobil.

US orthoxylene (OX) sellers have nominated July contract hikes of 2 cents/lb and 5 cents/lb, despite a downtrend in aromatics pricing.

Flint Hills Resources has offered customers 47 cents/lb for July, while ExxonMobil is targeting 50 cents/lb - both up from June's 45 cents/lb FOB US Gulf benchmark.

The benchmark US Tampa ammonia contract for July shipments has fallen by 4% month on month, taking it to $355/tonne CFR - a $15/tonne decrease from June.

This was in line with ammonia prices in Yuzhny, Ukraine, of $290-295/tonne FOB.

The US ammonia market historically bottoms out in June or July.

Brazilian ethanol prices climbed in the week ending June 18, reversing a nine-week downtrend because of tighter spot supply.

Research group CEPEA says hydrous ethanol is at Brazilian reais (R) 0.7382/liter, representing an increase of 5.2% from R0.7020/liter the week before. Anhydrous ethanol is at R0.8426/liter, up by 5% from R0.8023/liter over the same period.

The jump came as producers offered less ethanol in the spot market, says CEPEA, adding that sugar and ethanol spot sales have helped to improve cash flows in the industry.


European polypropylene (PP) buyers are having to pay further increases in June on top of prices that are already the highest in the world. Technical issues continue to impact supply and buyers are hesitating to take advantage of any arbitrage opportunities through fears that European values may fall before imports reach them.

"A price collapse is inevitable," says a trader, who dared not buy material offered for import into Europe because of the six-week lead time it would take to arrive.

"The time it takes for product to get to Europe is paralyzing everybody," says another large buyer. Some smaller lots are becoming available, but the lowest prices heard are in the mid-€1,200s/tonne FD Northwest Europe (NWE).

European buyers are being forced to pay even more for June contractual business after already accepting hikes of 30% so far in 2010. Some sources report a slight change in product availability in June, however, as PP producers have started to offer spot product for the first time in weeks, albeit at high prices.

PLEASE NOTE: As this is a double issue, the key indicator prices will next be published on July 12, 2010.

By: Andy Brice
+44 20 8652 3214

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