FocusEast China PO falls on supply deluge; northern producers spooked

30 June 2010 09:39  [Source: ICIS news]

By Ong Sheau Ling

SINGAPORE (ICIS news)--Spot propylene oxide (PO) prices in east China continued to slump on a deluge of material coming from Ningbo ZRCC Lyondell Chemical (NZLC), worrying northern suppliers about a possible loss of market share, market sources said on Wednesday.

East China PO prices at yuan (CNY) 10,500/tonne ($1,544/tonne) based on an NZLC offer on Tuesday, remained below north China material, which were priced at CNY10,900-11,200/tonne DEL (delivered).

“We can’t see the prices bottoming out [in the near term]. Seriously, my buying idea will get lower as the days pass,” said a buyer.

For the first time on record, east China PO values slipped below northern prices in the week ending 25 June, according to ICIS data, traced back to the shipping of the first NZLC material.

“This threatens our sales in the east. We have our [manufacturing] costs and we can’t offer at such competitive prices [as compared to NZLC’s],” said a source from Tianjin Dagu.

NZLC started trial sales of on-spec PO products priced slightly below market on 21 June, market sources said.

The company owns a facility at Ningbo in China’s Zhejiang province that can produce 285,000 tonnes/year of PO and 620,000 tonnes/year of styrene monomer (SM) plant. The plant, which is the largest of such facility in Asia, would cater solely to the east China market, said a company official.

“At this rate, we may lose our market share in the east,” a source from Jinhua Chemical said, adding that upstream propylene and chlorine prices had been relatively stable, but PO prices had been falling consistently for the past three months.

Asian PO prices declined by about 20% in the past three months, based on ICIS data.

NZLC is a joint venture between Sinopec subsidiary Zhenhai Refining and Chemical Co (ZRCC) and LyondellBasell.

Eastern China PO is typically priced higher when obtained from northern China, given the add-on cost of transporting the material.

“This is the first time in history that east China prices are lower,” a downstream polyols producer based in east China said.

Other PO producers that supply to eastern China were also hard-pressed to bring down offers in order to compete, local buyers said.

“At the moment, for Middle East material, we were told by the supplier that there is room for negotiation of prices at $1,300/tonne (€1,066/tonne) CFR (cost & freight) China and below,” a polyols maker said, adding that buying ideas were capped at $1,200/tonne CFR China, in view of further price falls.

“A Singapore-based maker has started to make adjustment to their PO sales, as the China market does not look good at all. They will either increase their captive use or divert their sales to other regions,” a market player said.

However, NZLC’s customers said that a portion of the company’s products had high water content, due to poor storage means at its warehouse.

“Flexible polyether polyols slabstocks makers [such as my company] can’t accept such material. Perhaps rigid producers can still use the PO [from NZLC],” said a polyols producer.

 ($1 = €0.82/$1 = CNY6.80)

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By: Ong Sheau Ling
+65 6780 4359

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