04 January 2012 03:51 [Source: ICIS news]
By Gabriel Yip
SINGAPORE (ICIS)--Asia’s liquid epoxy resin (LER) prices will likely be soft in the first quarter of 2012 because of weak demand from China and a slowdown in exports to Europe and the US, traders and sellers said.
The demand for LER from both the coatings and electronic laminates sectors in China has declined since the fourth quarter of 2011 and is expected to continue to drop because of a slowdown in the country’s economic growth, said several northeast Asia-based sellers.
Iso-tank LER prices were assessed at $2,550-2,650/tonne (€1,964-2,041/tonne) on 27 December 2011, down by $530-550/tonne from late September, ICIS data showed.
In addition, the cooling measures imposed by the Chinese government earlier in 2011 in an attempt to tame inflation has also had a negative effect on the LER sector, said several LER market players in China.
“The government intervention in China has caused the construction industry to weaken, thus reducing the demand for coatings, which require LER,” said a northeast Asia-based producer.
Demand from the wind energy sector also weakened after the Chinese government stopped providing subsidies for the sector during the second half of 2011 and market players said they do not expect any improvement in the near term.
Epoxy resins are polymers used to manufacture adhesives, coatings, paints and structural parts used in the automotive, aerospace and aircraft industries.
Regional market players said the bearish outlook for the Asian LER sector is also because of expectations of slower growth in emerging economies and, more importantly, the ongoing debt crisis in the eurozone and poor economic conditions in the US.
Europe and the US are key export destinations and the weaker demand from these two markets has weighed down significantly on the LER market in Asia.
As a result, most northeast Asia-based producers have been operating their plants at 50-70% capacity since the fourth quarter of 2011 and said they will likely keep their run rates unchanged in the first quarter of this year.
“It doesn’t make sense to operate at full capacity when [our] margins are constantly squeezed,” said a producer in northeast Asia.
Adding to the woes of Asia’s LER producers, supply is expected to increase with at least three capacity expansions scheduled to come on stream in China this year, said market players.
This includes Chinese producer Jiangsu Sanmu Group’s new 70,000 tonne/year epoxy resins plant at Guandong province that will produce both liquid and solid epoxy resins (SER), they added.
The resultant surplus in supply and stagnant demand will mean fewer outlets for Asia’s LER producers and that will cause their profitability to decline further, market players said.
“The added supply will push prices downwards if demand does not pick up,” said a seller in northeast Asia.
Some producers in China said they are planning to shut their LER plants during the Lunar New Year holiday on 22-28 January for maintenance, but market players said the shutdowns will have a small impact on prices as demand is fundamentally weak.
However, some players noted that the Chinese government has eased back on its cooling measures and said this might help to lend some support to the LER sector after the first quarter of this year.
Others added that they expect demand to resume from the second quarter onwards, as that is typically the beginning of a peak season for the LER market in Asia.
($1 = €0.77)
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