Petrochemicals: NE Asian spot liquidity to rise for propylene

30 January 2012 00:00  [Source: ICB]

Traders' high premiums could force Chinese buyers of propylene to cut their contractual commitments and turn instead to the spot market.

Premiums are as much 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. In 2011, premiums averaged $20-30/tonne.

At midday on January 17, spot propylene was at $1,340-1,370/tonne CFR NE Asia, whereas naphtha spot numbers were pegged at $946.50-949.50/tonne CFR Japan.

"The [propylene contract] premiums are very high this year - some people 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," the importer added.

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

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 - justified the sharp premium increase.

Some South Korean producers have locked in 2012 contracts with regional traders at a discount to CFR NE Asia prices. However, the discount is usually smaller than the freight cost, which averages around $70-80/tonne from South Korea to China, market players said. One South Korean producer suggested the discount was around $20/tonne in some cases.

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

Author: Soo Hwee Peh

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