FocusPotential for rebound in Asia petchems demand still uncertain

24 November 2011 08:39  [Source: ICIS news]

By Felicia Loo and Bohan Loh

SINGAPORE (ICIS)--It is still unclear whether Asian petrochemical demand will rebound in the next three months amid rising ethylene and butadiene (BD) prices, traders said on Thursday.

Ethylene prices in the region appeared to have bottomed out, rising by $10-20/tonne (€7.5-15/tonne) in the week ended 18 November to $1,020-1,050/tonne CFR (cost and freight) NE (northeast) Asia, ICIS data showed.

Downstream styrene butadiene rubber (SBR) prices in Asia ended a three-month slump on restocking activities by traders/end-users, and on the back of rising values of feedstock BD. 

Average spot prices of non-oil grade 1502 SBR rebounded $50/tonne week on week to $2,725/tonne (€2,017/tonne) CIF China on 23 November, after shedding 45% since early August, according to ICIS.

“South Korean butadiene demand is getting better,” said a trader in Seoul.

BD prices were assessed at $1,700-1,750/tonne CFR NE Asia in the week ended 23 November, up by 9.5% from the previous week. Until the rebound in prices this week, BD values had been falling for four months.

The rebound in BD prices led to expectations that SBR values will increase further, market sources said. BD is a major feedstock in the production of SBR, making up more than 70% of SBR’s composition and cost.

“There are mixed signals from the markets. If China and India continue to consume more (energy), there will be some support,” said a trader in Singapore.

However, economic growth in China, the world’s second biggest economy, is forecast to decelerate to 9.1% in 2011 from 10.4% last year, the World Bank said.  With the exclusion of China, economies in east Asia will just grow at 4.7% in 2011 from a 7.0% expansion recorded last year, it said in the report.

On polymers, it is atypical of the markets to keep inventory levels low at the end of the year, traders said.

“The (polymers) buyers are not stocking up and they only buy on a need-to basis,” said a polymers trader in Asia.

China’s linear low density polyethylene (LLDPE) futures fell by 1.65% on 23 November because of the prevailing bearish outlook. China’s spot LLDPE prices fell by yuan (CNY) 100/tonne ($15.70/tonne) at the high end of the range to CNY9,200-9,500/tonne, from CNY9,200-9,600/tonne on 22 November.

A major polymer importer based in Shanghai said it is cutting its prices despite squeezed margins to offload cargoes in view of weak demand and financial obligations ahead of the Lunar New Year holiday in January next year.

Traders in China usually repay their bank loans and give out cash bonuses to their employees before the Lunar New Year holiday each year.

In the xylenes market, demand for isomer-grade mixed xylenes (MX) is tapering off due to a shrinking spread between MX and paraxlyene (PX) at $215/tonne. The spread has narrowed from over $400/tonne margins two months ago but remains generally sufficient for PX makers to break even and cover operational costs of around $180-200/tonne.

Nonetheless, supply of MX is expected to remain tight because of limited plant expansions next year.

Demand for PX is similarly tapering off after months of tight supply due to squeezed PX-PTA margins. Numerous downstream PTA units are either shutting down or reducing operating rates in December because of negative margins.

An influx of deep-sea cargoes from EU of around 15,000 tonnes and the US of around 60,000 tonnes is even expected to favour the buyers for December and January molecules. However, PX will face a supply squeeze early next year because of a deluge of PTA expansions and major planned turnarounds in the first quarter of 2012.

Asia naphtha prices are kept rangebound this week because of a lack of clear market direction, traders said.

Good news was that the bearishness seemed to have fizzled out as reflected in a few spot trades this week, they added.

South Korea’s Honam Petrochemical has bought 25,000 tonnes of naphtha for second-half December delivery into Daesan, at a discount of 25 cents/tonne to Japan quotes CFR, traders said. This rose sharply from a discount of $3.00/tonne fetched in a previous spot trade of 50,000 tonnes made last week, they added.

South Korea’s LG Chem has bought 25,000 tonnes of spot naphtha for delivery in the second half December at a lower discount level, traders said. The cargo was done at a discount of 50 cents/tonne to Japan quotes CFR, they said. In its previous spot purchase, the company bought 50,000 tonnes of first-half December naphtha at a discount of $1.25/tonne.

“The direction is not clear at this stage. The crackers are also running at lower rates and spot buying is only from South Korea, not Japan and Taiwan. It is more of a supply-driven issue than demand,” said one trader.

($1 = €0.75)

Additional reporting by Helen Yan, Yu Guo and Peh Soo Hwee

For more on naphtha, visit ICIS chemical intelligence

By: Felicia Loo

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