FocusChina spot PO price uptrend likely to continue in Sept

By Ong Sheau Ling

SINGAPORE (ICIS)--Spot propylene oxide (PO) prices in China, which gained 23% in August alone, are likely to remain on an uptrend until the end of September on the back of improved demand from the downstream polyether polyols sector, market sources said on Monday.

Prices had surged from July to hit a three month-high at yuan (CNY) 12,650-13,300/tonne ($1,860-1,956/tonne) DEL (delivered) China on 27 August, according to ICIS data. (Please see graph below)

This had followed a price slump that lasted from May to July due to waning demand and the influx of PO from Ningbo ZRCC Lyondell Chemical’s (NZLC) 285,000 tonne/year unit in Zhejiang province, which started operations in June.

The recent price surge was due to tighter import volumes due to an outage at SKC’s 180,000 tonne/year PO/SM (styrene monomer) unit in Ulsan, South Korea and low operating rates at a 200,000 tonne/year PO plant in the Middle East and another 250,000 tonne/year PO unit in southeast Asia, market sources said.

Supply of domestic PO had been hit due to the irregular operating rates at CSPC’s (CNOOC & Shell Petrochemical Co) south China-based 320,000 tonne/year PO/SM facility in August.

Availability was also low from Chinese PO facilities based on chlorohydrin technology which had restarted normal operations only around mid-August after cutting production in mid July due to weak demand at the time, market sources said.

PO sales had risen in August due to increased demand from downstream polyols plants which were ramping up operations amid a short supply in flexible polyols slabstocks, sources said.

Key polyols producer CSPC has not been able to operate its 200,000 tonne/year unit at 100% after it shut the plant down on 31 July due to a power outage, which had exacerbated the current shortage, they added.

Polyols makers, who had maintained low PO stocks during the lull season from May to July, were now buying more PO than expected to make up for the shortfall in supply, they said.

“Three weeks before the arrival of the [PO] cargo from Singapore, buyers had already booked all the products from us,” an east China-based Dow Chemical PO distributor said.

“Our volumes [from the Middle East] are cut by half for August, and we need more material,” a polyols producer based in eastern China said, adding that the seller had recently raised offers to $1,600/tonne (€1,248/tonne) CFR (cost and freight) China, which was too high.

On 27 August, import prices were discussed at $1,500-1,600/tonne CFR China, an increase of $50-80/tonne over the last week, ICIS reported.

Most polyols producers preferred to buy imported PO over local material from NZLC as they would be able to claim tax rebates on exports, another east China based polyols maker said.  

PO inventories at NZLC, which has a nameplate capacity of 285,000 tonnes/year at its PO/SM plant, were also low despite running at close to full tilt due to the increased demand, sources said.

Large local PO units such as Fangda Jinhua, Tianjin Dagu and Shandong Binhua had ramped up operations to 80-95% on the increased demand and healthy upstream propylene-PO spread, they added.

Market players expected the bullish trend to continue through September – the traditional peak manufacturing season for the foam market which uses polyols as raw material.

While some market players believed that demand for foam from the furniture sector would grow further in the second half of 2010, others said that the rise in demand was a temporary phenomenon.

“This is just a temporary sign of improved demand, all these uncertainties make buyers like us feel worried and that is why we are buying a lot of PO now to secure our supply. Our orders from the foamers aren’t that great,” a polyols maker based in east China said.

Some polyols producers believed that the increased PO production would lead to another supply deluge and cause prices to slump towards the end of September.  

“The Asian Games based in Guangzhou, which are due in November, has also raised concerns among foamers that they may have to bring forward their foam production. So, good sales volume with polyols in the meantime is natural, but we can’t guarantee this to last into end of September,” a key PO producer said.

($1 = €0.78, $1 = CNY6.80)