FocusAsia petrochemical demand, prices to firm post-Lunar New Year

20 January 2012 05:52  [Source: ICIS news]

By Pearl Bantillo and Dolly Wu

SINGAPORE (ICIS)--Spot prices of petrochemicals in Asia may get a good nudge up following an expected virtual halt in trades next week as the region celebrates the Lunar New Year, with most market players hoping for a strong pick-up in buying activities.

China will be out of the market for a full week on 22-28 January, while Taiwan will have a three-day holiday. In South Korea, Singapore, Indonesia and Malaysia, the shift to the Year of the Dragon in the Chinese calendar will be celebrated for two days at the start of that week.

Prices of some petrochemical products in the region have either been falling or trading sideways since the start of the year, as demand traditionally weakens in the weeks leading to the Lunar New Year celebration, which is happening a bit early in 2012.

Some propylene sellers in northeast Asia expect prices to move up, to track the rising values of feedstock naphtha.

An expected tightness in regional supply because of a slew of cracker turnarounds due in March should also give propylene prices a further boost, market sources said.

Offers were scant this week as some traders prefer to suspend discussions until after the Lunar New Year holiday.

Spot propylene prices were quoted at $1,350-1,400/tonne (€1,040-1,078/tonne) CFR (cost and freight) NE (northeast) Asia at midday on Friday, while naphtha values were at $960.50-962.50/tonne CFR Japan.

A South Korean producer said it had received a bid at $1,350/tonne FOB Korea for March loading cargoes, but has decided to postpone negotiations until after the festive season.

“Cargoes are limited in the market and prices are getting better so we want to wait until after the Chinese New Year,” the producer said.

In the purified terephthalic acid (PTA) market, some sellers have taken a similar stance on transactions.

“I don't plan to sell more cargoes before holiday, as prices will rise further amid firmer energy futures and peak buying after the holiday,” a PTA trader said.

Expectations that China, the biggest petrochemical importer in Asia, will adopt a more loose monetary policy going forward will boost trade in the commodities market.

The upbeat sentiment that the domestic credit crunch in the world’s second biggest economy will ease was reflected in trades at the linear low density polyethylene (LLDPE) futures market at the Dalian Commodities Exchange this week.

The Chinese authorities are widely expected to adjust down the reserve requirement ratio for banks after China posted its slowest growth in two-and-a-half years, of 8.9% in the fourth quarter of 2011.

With external demand unlikely to pick up anytime soon as Europe struggles under the debt of its massive debt and the US economy remaining in a fragile state, export-reliant Asian countries will have to boost domestic consumption to ensure economic growth.

In China, a loosening of its tight monetary policy would free up liquidity for cash-strapped small and medium-sized enterprises.

Expectations within the country’s petrochemical market is equally upbeat on spot prices, with the upward push likely to come from tight supply since most plants in China will be shut for a full week.

Prices of styrene monomer (SM), methanol, acrylonitrile (ACN), dioctyl phthalate (DOP), urea, bisphenol-A (BPA) in the Chinese market look set to move up on restocking after the holidays, market sources said.

In some products, demand may not rebound as strongly as can be hoped, but high feedstock costs will push prices higher.

“Everything is so uncertain and we are not sure whether demand for synthetic rubber will rebound after the Lunar New Year,” a Chinese synthetic rubber producer said. Synthetic rubber producers in Asia are in a bind because of high production costs caused by soaring prices of feedstock butadiene (BD) and their inability to hike product prices amid strong resistance from downstream tyre makers.

Soaring feedstock BD costs have climbed to $3,100/tonne CFR (cost and freight) northeast (NE) Asia and have eroded the margins of synthetic rubber producers in Asia.

However, the downstream tyre producers are also feeling the squeeze from falling tyre export sales.

A number of small and mid-sized tyre producers in China are expected to have an extended Lunar New Year holiday this year because of weak market conditions.

“The small and mid-sized tyre producers in China may shut down their plants for two weeks this year instead of the usual three to seven days as the market is poor. Some of our customers have told us that they are not going to buy any synthetic rubber in the first quarter,” the Chinese SBR producer said.

China is a major tyre production centre for the global tyre market.

In the Asian ammonia market, players are hoping the uptick in demand seen in January will continue to help prices stabilise after the holidays.

Spot ammonia prices have been on a downward trend since December given a reduction in demand from downstream applications such as acrylonitrile and caprolactam.

"Ammonia demand from the chemicals sector has been improving, as plants are restarting or being run at higher rates than late last year. But I hear that ammonia demand from the fertilizers segment has not recovered yet,” said a Taiwanese buyer.

In Taiwan, ammonia prices tumbled from $620-630/tonne CFR on 15 December 2011, to $480-490/tonne CFR on 12 January 2012.  

"Ammonia consumption is better in Taiwan now, but perhaps it is not so good in other countries in the region. We hope the situation improves in February, after the holidays" a fertilizers supplier said.

Additional reporting by Peh Soo Hwee, Judith Wang, Helen Yan, Gabriela Wheeler, Natalie Hui, Jessica Mao, Nicole Zhang, Phoebe Lu, Sherry Su, Ivy Ruan, Lily Zhang, and Sam Liang

($1 = €0.77)

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By: Pearl Bantillo
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