FocusAsia’s BDO prices set to fall on weak demand from PU segment

19 October 2011 10:46  [Source: ICIS news]

By Quintella Koh

BDO can be used to make polyurethane elastomers (source: BASF)SINGAPORE (ICIS)--Prices of butanediol (BDO) in Asia appear poised for a sharp drop in the coming weeks, as a result of extremely weak demand from the polyurethane (PU) segment, several market sources said on Wednesday.

A major Western producer said that its key customers have procured BDO cargoes at $3,150/tonne (€2,268/tonne) CFR (cost & freight) CMP (China Main Port).

This is a decline of $150-250/tonne from prices assessed at $3,300-3,400/tonne CFR CMP on 18 October, according to ICIS data.

BDO is used primarily in the application of PU in the leather industry in China, while PU is used in the production of shoe soles.

Demand from the PU segment is likely to remain weak as the result of shoe-factory closures amid an ongoing regional credit crisis at Wenzhou city in Zhejiang province.

Wenzhou is home to many Chinese shoe manufacturers, some of whom were heard to have closed their factories because of unpaid debts to private lenders, industry sources said.

The local business community said the crisis is an extreme case of small- and medium-sized enterprises (SMEs) struggling to survive the liquidity crunch resulting from the government’s attempt to cool inflation by tightening its monetary policy, China's state-owned news agency Xinhua said on 11 October.

Factors that led to the crunch include Wenzhou’s traditional reliance on high-interest informal lending and a lack of supervision in the market, according to media reports.

Some companies reportedly took on loans with interest rates as high as 70%, according to market sources.

A spokesman for the Wenzhou government said on 11 October that 25 banks in the city have pledged to increase lending to SMEs to help them weather the crisis, Xinhua said.

Premier Wen Jiabao had on October 5 asked banks to lend more money to SMEs and requested a crackdown on the informal lending market, Xinhua said.

Banks have also increased the lending ratio to SMEs and industry associations have taken measures to provide financial assistance, Xinhua said.

Zhou Dewen, chairman of the Wenzhou SME Development Association, said the association has prepared an emergency fund worth yuan (CNY) 900m ($141m) to help private firms in urgent need of cash to sustain their operations, added Xinhua.

“Many of the firms are labour-intensive manufacturing firms making narrow profits from the mass production of small commodities,” Xinhua cited Zhou as saying.

 ($1 = €0.72, $1 = CNY6.38)

Additional reporting by Caroline Zhang
For more information on BDO and PU, visit ICIS chemical intelligence

By: Quintella Koh
+65 6780 4372

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