FocusChina propylene price hike capped by economy, crude worries

25 August 2011 05:49  [Source: ICIS news]

ChinaBy Peh Soo Hwee and Lilian Hua

SINGAPORE (ICIS)--China’s propylene spot prices may not increase further as the buying sentiment in the country remains weak amid worries over the global economy and volatile feedstock crude prices, market sources said on Thursday.

The European debt crisis and the prospect of a double-dip recession in the US may affect the demand for finished goods from China, which is the world’s largest manufacturing hub, the sources said.

Chinese producers use petrochemicals to produce a wide range of consumer items from toys to textiles, which are exported to Europe and the US.

The weakening demand from these key markets will have a significant impact on the supply chain, the sources added.

Offers and selling ideas for propylene cargoes arriving in September hovered at around $1,600/tonne (€1,104/tonne) CFR (cost & freight) China this week, but this was met with weak interest from end-users who preferred to stay on the sidelines.

“The asking price is $1,600/tonne, but traders seem open to negotiations at below this level,” a Chinese acrylic acid producer said.

Buying ideas during the same period were around $30-50/tonne lower at $1,550-1,570/tonne CFR China, end-users and traders said.

The market sentiment in China has been dampened by news of Taiwan’s Formosa Petrochemical Corp (FPCC) restarting its crude distillation unit (CDU) at its 540,000 bbl/day refinery in Mailiao on 21 August as the producer may not actively buy spot propylene cargoes, the end-users and traders added.

According to a source from FPCC, the company will restart its No 1 residual fluid catalytic cracker (RFCC) and its olefins conversion unit (OCU) at the same site “very soon”, but has not confirmed the date for the restart.

The RFCC can produce around 325,000 tonnes/year of propylene, while the OCU has a propylene capacity of 250,000 tonnes/year.

FPCC shut its refinery and propylene facilities because of a fire at the Mailiao petrochemical complex at the end of July.

Domestic propylene prices in the key Shandong market were traded at around yuan (CNY) 12,000/tonne ($1,878/tonne) ex-tank this week and may have limited room to move higher, some market sources said.

Low operating rates at propylene facilities and plant shutdowns in Shandong during the period tightened domestic supply and supported the recent price hike earlier this month, the sources added.

The operating rates at atmospheric and vacuum distillation units in Shandong were at below 40% last week, according to data from ICIS.

“It is almost impossible that propylene prices can go up from this point, because of the volatile oil prices,” a producer in Shandong said.

“End-users, especially powdered polypropylene (PP) producers, have retreated to the sidelines as they are sensitive to the propylene prices. Many of them have chosen to shut down or lower their plant operating rates and this will affect the demand for propylene,” the producer added.

The derivative PP sector, which accounts for more than half of China’s propylene consumption, has been affected by the persistent increase in feedstock prices this year.

The prices of powdered PP were heard at around CNY12,400-12,500/tonne ex-works in Shandong this week.

Propylene spot prices were assessed at $1,550-1,600/tonne CFR China last week, above PP yarn prices at $1,520-1,560/tonne CFR China during the same period, according to data from ICIS.

PP makers typically need their product prices to be at least $150/tonne above those of propylene to break even, but they have been incurring losses for most of this year.

The supply of propylene tightened because of a heavy cracker turnaround in the first half of 2011 and unplanned shutdowns at propylene plants in Japan and Taiwan, causing prices to maintain their high levels, market sources said.

($1 = €0.69, $1 = CNY6.39)

For more on propylene, visit ICIS chemical intelligence
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By: Peh Soo Hwee and Lilian Hua

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