China PO prices tumble on weaker polyols demand, ample supply

29 November 2010 06:50  [Source: ICIS news]

SINGAPORE (ICIS)--China's spot propylene oxide (PO) prices have plunged from the 27-month high seen in mid-November as a result of waning demand from the downstream polyether polyols sector and ample PO inventories, industry sources said on Monday.

Spot discussions were heard at the low CNY13,000s/tonne DEL (delivered) range on Monday morning, down by more than CNY1,000/tonne from the over CNY14,500/tonne DEL China levels heard on 16 November, ICIS data showed.

Imported cargoes were assessed at $1,600-1,650/tonne (€1,200-1,238/tonne) CFR (cost & freight) China.

Market players attributed the drastic fall in PO prices to the weakened polyols demand, which in turn was due to the resistance of downstream foam makers who said they could no longer pass on the huge raw material costs to their customers.

Spot polyols prices on a bulk DELChina basis were heard at a 25-month high of $1,900-1,950/tonne on 24 November amid tight import availability, according to ICIS. Domestic market prices were discussed at CNY15,000s/tonne DEL.

“The key reason here is the slump in domestic polyols prices. We have to keep a healthy spread between PO and polyols, so we have no choice but to drop our offers,” a Shandong-based PO producer said in Mandarin, adding there was no cost pressure as feedstock propylene and chlorine values had remained soft.

Propylene prices had slipped to the mid-CNY10,000s/tonne DEL Shandong level last week, as assessed by ICIS.

“The spread between PO and polyols prices was over CNY2,000/tonne [in mid-November], but the gap should traditionally be at around CNY1,000/tonne,” said a key polyols maker in eastern China.

Local PO producers were running their units at close to full capacity in early November, as demand from the downstream polyols sector was very strong, said market players.

However, that demand fizzled out and PO makers had begun feeling pressure as inventories were building up. As a result, several of those producers started slashing their offers to entice buying interest, added the players.

Nevertheless, country's largest PO seller - Ningbo ZRCC Lyondell Chemical (NZLC) - was not facing similar inventory pressure because it had a brief shutdown in early November, an NZLC customer said.

Moreover, the NZLC had plans for two-to-three week turnaround at the PO unit in December, in tandem with the shutdown at its upstream cracker.

The planned shutdown and the current high feedstock costs prompted most producers to say PO prices would not fall below CNY12,000/tonne DEL China.

However, other players argued that PO supply was currently ample and would remain sufficient for the rest of the year, as the arrival of more Middle East cargoes in November would make up for the loss of NZLC’s output.

($1 = CNY6.67 / $1 = €0.75)

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Author: Sheau Ling Ong

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