FocusNE Asia C3 spot liquidity to grow on high contract premiums

17 January 2012 06:02  [Source: ICIS news]

By Peh Soo Hwee

Busan port in South KoreaSINGAPORE (ICIS)--Spot liquidity in the northeast Asian propylene (C3) market may rise this year, as some buyers in China plan to reduce their contractual commitments given high premiums being sought by traders, market sources said on Tuesday.

Traders are asking premiums of as high as $40-50/tonne (€32-40/tonne) above the published CFR (cost and freight) northeast (NE) Asia prices for 2012 settlements, roughly double those recorded for last year’s contracts with Chinese buyers, they said.

In 2011, propylene contracts with buyers in ChinaAsia’s largest spot consumer – had premiums averaging $20-30/tonne.

China imported around 1.55m tonnes of propylene in January to November 2011, exceeding the 1.52m tonnes the country took in for the whole of 2010, according to official data.

“The [propylene contract] premiums are very high this year - some are asking as much as $50/tonne, which is not acceptable,” said one Chinese propylene importer.

“We are likely to buy more propylene from the spot market because it is tough to negotiate the contracts,” he added.

Traders said that volatile feedstock naphtha prices and the increased procurement costs of getting term supplies from South Korea – a key exporter of propylene in Asia – justify the sharp premium increase.

Some South Korean producers have locked in 2012 contracts with regional traders at a discount to CFR NE Asia prices.

But the discount is usually smaller than the freight cost, which averages around $70-80/tonne from South Korea to China, producers and traders said.

One Korean producer said the discount was around $20/tonne in some cases, although this could not be immediately confirmed.

This meant that traders are buying term cargoes from the producers at higher prices this year, and in turn, had had to seek higher premiums in their contract negotiations with end-users.

At midday, propylene spot prices were assessed at $1,340-1,370/tonne CFR NE Asia, up $10/tonne at the low end of the price range. Naphtha spot prices were at $946.50-949.50/tonne CFR Japan on Tuesday, according to ICIS.

Producers are also keen to raise propylene prices, as cracker margins remain poor, squeezed by high feedstock naphtha prices and weak polymer demand against the backdrop of a volatile global economic climate.

Cracker margins based on naphtha feed in Asia were down 20-30% last year compared with 2010 levels, according to ICIS data.

This has kept operating rates among some naphtha crackers in the region at an average of 80-90% notably in Japan, Taiwan and southeast Asia this month.

A busy cracker turnaround season in the first half of the year was also among the factors for the higher contractual premiums being sought in 2012, market sources said.

For instance, key naphtha crackers in South Korea are slated for maintenance in March.

Honam Petrochemical will shut its 750,000 tonne/year cracker at Yeosu from 1 March to 10 April while Yeochun NCC (YNCC) will take its 578,000 tonne/year No 2 cracker in the same area off line for a turnaround from 20 March to 19 April.

Given the current stand-off among some buyers and traders, contractual negotiations could drag until late January, after the Lunar New Year holidays.

“There is a deadlock in negotiations with the buyers and we have not settled the contracts,” said one Japanese olefins trader.

($1 = €0.79)

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By: Peh Soo Hwee
+65 6780 4359



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