China's EVA prices still high despite weak demand, oversupply risk

04 May 2011 09:32  [Source: ICIS news]

By Amanda Zhang

SHANGHAI (ICIS)--China's ethyl vinyl acetate (EVA) prices will remain high in May and will possibly begin falling only in June, as major producers have yet to face inventory pressure despite weakening demand, industry sources said on Wednesday.

The price of EVA type 5110J was CNY20,600-20,700/tonne ($3,169-3,184/tonne) EXW (ex-works) in south China on 7 March and settled at the current high level of CNY21,000-21,100/tonne on 13 April, according to data from Chemease, an ICIS service in China.

The price of EVA type 7350M was $2,780/tonne on 28 March. It moved up $50/tonne on 29 March to $2,830/tonne CFR (cost & freight) CMP (China Main Port) and has remained stable, according to data from Chemease.

A supply crunch has exerted upward pressure on EVA prices since the third quarter of 2010 and widened the buy-sell gap. 

Major producer Taiwan's Formosa Plastics Corp (FPC) is operating its 240,000 tonne/year EVA plant in Mailiao at nearly full rates, following a turnaround from 1 to 21 March, a company source said.

The producer's inventories are not expected to build up until the middle of May because of the shutdown at its plant, industry sources said.

Inflation in China is expected to rise to an average 4.6% this year and the prices of chemical products have increased in step with the economy’s growth. The selling sentiment of producers has thus been impacted by this upswing, and EVA is one such sector where producers are opting to keep their prices firm.

BASF-YPC held its price stable at CNY21,000/tonne EXW on 3 May, which it has been offering since 1 April, a company source said. The producer will not be lowering its offers as there is no pressure to clear stock levels in May, the source added.

Footwear, which is a major downstream sector, accounts for half of EVA consumption in China's market. The sector is entering a lull period in May and June following its traditional peak manufacturing season in March and April when demand is high, industry sources said.

"We will have limited profits if we purchase feedstock EVA at the current high prices," a producer from the footwear industry said. However, despite purchasing less feedstock than the previous year, the offers of EVA producers have yet to slide, he added.

Besides downstream sectors such as footwear, EVA is used as a solar encapsulation resin in the manufacture of membranes in solar photovoltaic panels.

Downstream demand in the solar membrane sector has softened since the beginning of the year, but this is because of fewer export orders, industry sources said.

Some countries in the EU are planning to reduce their subsidies for solar photovoltaic plants. Germany's solar industry and the country's government have already implemented a subsidy cut for the sector earlier this year.

The effects of Europe's subsidy cuts have spilled over to China, where export orders of photovoltaic modules dropped in the first quarter of 2011 compared with the same period last year, market sources said.

This decline has led to downstream solar membrane factories – mainly those that are export-oriented – to lower their operating rates, resulting in a further drop in the purchase of EVA locally, sources said.

Should buying resistance continue in the downstream sector, inventories of the major producers will soon accumulate and heighten the likelihood of oversupply in June, market participants said.

As a result, signs of softening may only emerge then, they added, as producers will finally resort to lower their prices to move their stock levels.

EVA is derived from the copolymerisation of ethylene with vinyl acetate. It is a high polymer alloy known for its properties that include clarity, durability, flexibility and the ability to withstand low temperatures. EVA is used in a variety of applications such as stretch film for shrink wrapping, protector strips, shoe soles and disposable medical equipment. 

Major EVA producers include BASF-YPC, Beijing Eastern Petrochemical and Beijing Huamei Polymer.

($1 = CNY6.50, $1 = €0.67)

Additional reporting by Amy Yan

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For more on ethylene and vinyl acetate (monomer), visit ICIS chemical intelligence
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Amanda Zhang
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