FocusChina PO hits 27-month high as Middle East cargo flows dwindle

16 November 2010 04:46  [Source: ICIS news]

By Ong Sheau Ling

SINGAPORE (ICIS)--Spot propylene oxide (PO) prices in China are trading at 27-month highs and may extend their rally in the coming weeks amid a dearth of supply coming from the Middle East and robust demand from downstream polyether polyols sector, industry sources said on Tuesday.

The prices were expected to move in tandem with the strong values of upstream propylene and downstream polyols, they said.

Spot PO discussions were heard at above yuan (CNY) 14,500/tonne ($2,180/tonne) DEL (delivered) China levels on Tuesday, representing about a 4% increase from the start of November, market sources said.

This followed an 11% surge in October prices as more polyols makers rushed to buy raw materials to ramp up production.

Flexible grade polyols, which go into making of foams, were in strong demand but supply was short because a major domestic producer, CNOOC & Shell Petrochemical Co (CSPC) had switched to producing high-resilience grade and polymer grade polyols (POP) at its 135,000 tonne/year plant in Huizhou, South China, last month, market sources said.

Meanwhile, domestic supply of raw material PO was just adequate, but some buyers lose out the incentive of tax rebates in re-exporting polyols when they use imported material, market sources said.

A 10-day outage at PetroRabigh’s 200,000 tonne/year PO plant in Saudi Arabia in late October partly caused the dwindling of Middle East cargoes heading to China, they added.

The plant was restarted on 5 November but has yet to ramp up production, sources close to the company said.

“There are less Middle East cargoes coming in since October,” said a Chinese trader, adding that there would be no Middle East material arriving in November. About 12,000-15,000 tonnes of Middle East PO cargoes go into China on a monthly basis.

Even from southeast Asia, spot PO shipments into China would be lower due to less swapped cargoes from a US producer this month, market players said.

The US producer would only have a 1,500-tonne parcel enroute to Shandong in end-November against a monthly average volume shipment of 3,000-4,000 tonnes, market sources said.

Southeast Asian material for end-November arrival was transacted at $1,690/tonne (€1,234/tonne) CFR (cost and freight) China last week, and the producer that made the sale had no more cargoes left for the month, they said.

Partially making up for the slack of imported PO supply in China, Japan would be shipping out some 3,500 tonnes of the material by the end of the month, market sources said.

The Japanese lots were heard sold at $1,660-1,700/tonne CFR China last week, with fresh offers pegged at $1,730-1,750/tonne CFR China, they said.

Meanwhile, PO producers said they continued to receive a great deal of buying inquiries from polyols makers and that the latter were willing to pay higher prices for the material due to a healthy spread between PO and flexible slabstocks grade polyols.

“The current spread of more than CNY1,500/tonne between PO and flexible slabstocks is really good. It has been years that we have such good spread,” said a polyols maker, adding that they require a price gap of at least CNY800/tonne to break even.

“Polyols prices have been [spiking] in an exponential manner due to tight supply from CSPC. There is still room for polyols makers to raise their buying ideas,” a Shandong-based PO producer said.

Spot price discussions in the Chinese domestic polyether polyols market were in the high CNY15,000/tonne levels to low CNY16,000/tonne DEL levels this week, market sources said.

“PO prices are really high now, we are just concerned [that] prices might just slump if the demand turned sluggish,” said a PO maker.

($1 = CNY6.65 / $1 = €0.73)

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By: Ong Sheau Ling
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