FocusAsia olefins may soon hit fresh highs on tight supply

10 February 2011 04:33  [Source: ICIS news]

By Peh Soo Hwee

SINGAPORE (ICIS)--Asian olefins spot prices may hit fresh highs in the coming weeks as supply is expected to tighten when the cracker turnaround season in the region kicks off later this month, market players said on Thursday.

At least 22 crackers are slated to be shut in 2011 for maintenance (refer to table below), with more than half of the turnarounds occurring in the first half of the year, according to data from ICIS.

“We see the upside potential for ethylene due to relatively tight supply in the region,” said a Japan-based olefins trader.

“I also do not see any spot cargoes from the Middle East,” he said.

Offers for ethylene this week increased to around $1,350/tonne (€986/tonne) CFR (cost and freight) NE Asia - about 6% higher than the last assessed prices in late January, with one deal done at $1,320/tonne CFR Korea for March arrival, market sources said.

In end-January, spot prices of ethylene were at an eight-month high of $1,260-1,290/tonne CFR (cost and freight) northeast (NE) Asia, while propylene was at $1,370-1,380/tonne CFR NE Asia – a level not seen in more than two years, according to ICIS data.

The key Chinese market was closed on 2-8 February for the Lunar New Year holidays, which significantly slowed down trades last week.

Meanwhile, ethylene prices in southeast Asia could soon close the gap with levels in the northeast amid talks of cutbacks/delays in the delivery of term cargoes from Qatar, traders said.

Ras Laffan Olefins’ 1.3m tonne/year cracker in Qatar has been operating at low rates due to persistent technical issues, they said. Company officials were not immediately available for comment.

“Prices in southeast Asia are likely to move up as buyers are affected by the delays,” said a Singapore-based trader.

In end-January, prices of ethylene in southeast Asia at $1,150-1,190/tonne was around $100/tonne lower than northeast Asian values, according to ICIS.

Offers/selling ideas for end-February/March arrival parcels were at above $1,300/tonne CFR SE Asia this week, while buying ideas hovered in the mid- to high- $1,200/tonne CFR SE Asia levels, market sources said.

As for propylene, traders were targeting to sell spot cargoes for late February/early March arrival at least in the low- to mid-$1,400/tonne CFR NE Asia.

But buying sentiment in the key China market had been cautious following the recent move by the government to raise interest rates to rein in inflation, according to some traders.

Higher interest rates meant an increase in borrowing costs for businesses, which could hurt their earnings.

“The market has been rather sluggish. Buyers don’t seem interested above $1,400/tonne CFR China,” said another Japan-based trader.

Separately, a Taiwanese polypropylene (PP) producer said the sharp spike in feedstock propylene costs was expected to exert further pressure on its margins.

“We are not making money if propylene crosses the $1,400/tonne level,” he said in Mandarin.

PP yarn spot prices were hovering above $1,500/tonne CFR China this week, while a typical spread of $150/tonne with propylene is usually needed for producers to break even.

Updated Asia cracker turnaround schedule in 2011

($1 = €0.73)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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By: Peh Soo Hwee
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