FocusAsia etac prices may extend gain on supply disruption, feedstock

03 April 2012 05:05  [Source: ICIS news]

By Trisha Huang

Etac is used in coatings, as well as in adhesives and cosmeticsMELBOURNE (ICIS)--Asia ethyl acetate (etac) prices may extend gains on the back of a supply disruption in Japan, firmer feedstock acetic acid values in China, and planned maintenance at a major plant in China this month, market sources said on Tuesday.

“Etac prices may go up by $10-20/tonne (€7.50-15/tonne),” said a trader who buys cargoes from China. “We are looking for additional spot quantities for April and May shipment.”

Etac prices for the week ended 30 March were assessed at $965-975/tonne FOB (free on board) China, up by $5/tonne, the first rebound in six weeks.

In mid-March, Japan’s Showa Denko shut its joint-venture 100,000 tonne/year etac plant in Oita because of feedstock supply issues linked to the extended outage of its cracker.

Showa Denko operates another 50,000 tonne/year etac plant located at Merak in Indonesia.

The company is bringing in etac shipment from its Indonesian plant to help meet the supply shortfall, market sources said.

However, several market participants said Japan’s importers may need to increase spot imports from China in April and May to ensure stable supply.

Japan consumes about 250,000 tonne/year of etac and is a net importer of the solvent acetate. Most of the country’s etac imports come from China, which mainly uses acetic acid and ethanol as raw materials.

“The length of the Showa Denko outage is the key issue,” a trader said. “Product availability in Japan is getting tighter for end-users who prefer to use Japanese-produced etac.”

These end-users prefer to use Japanese-produced material as they are very quality conscious, while others are not able to use ethanol-based products, he added.

“However, there is ample supply of Chinese material in the market. Therefore, even if China’s etac prices do go up [as a result of additional Japanese spot imports], the price increase is likely to be limited to $10-20/tonne, maybe $30/tonne at most,” the trader said.

On 28 March, Showa Denko announced it will temporarily suspend operations at its Oita ethylene plant, and postponed its plans to fully resume ethylene output to end May.

In addition to a possible rise in Japan’s spot demand, China’s largest etac producer, Jiangsu Sopo Chemical, is planning to shut its 500,000 tonne/year etac plant at Zhenjiang in Jiangsu province from around 20 April for 20 days of maintenance.

A concurrent overhaul to be carried out at Jiangsu Sopo’s 1.2m tonne/year acetic acid plant, coupled with news of an acetic acid plant outage in southeast Asia three weeks ago, have bolstered buying sentiment and sent acetic acid prices in China higher.

As a result of the feedstock price increase, etac prices in China rebounded by yuan (CNY) 50/tonne ($8/tonne) for the week ended 30 March, the first price increase in seven weeks.

Domestic etac prices in east China were at CNY6,400-6500/tonne EXW (ex-works) for the week ended 30 March. Producers’ export asking prices were also stable-to-firm at $970-980/tonne FOB China.

However, the upbeat market sentiments were tempered by an expected etac supply increase in the second quarter, with two producers set to bring onstream an additional 300,000 tonne/year of etac capacity.

In the second quarter, China’s Shanghai Huayi Group is planning to start up its 200,000 tonne/year etac plant, and Wuxi Baichuan Chemical Industrial plans to start up its new 300,000 tonne/year etac/butyl acetate (butac) swing plant in the May-June period.

Wuxi Baichuan plans to produce 100,000 tonne/year of etac and 200,000 tonne/year of butac when commercial operation begins.

China has a total etac capacity of about 2m tonne/year, accounting to more than half of the world’s etac supply.

The ample supply has curbed etac’s feedstock-led price gains, forcing many producers to operate with negative margins.

Feedstock acetic acid prices increased by 3.1% since early January, to close at an average of $412.50/tonne FOB China for the week ended 30 March, according to assessment by ICIS.

In comparison, etac prices have risen by less than 1% over the same period to an average of $970/tonne FOB China for the same week.

“Weak margins have also capped China’s overall etac operating rate at about 70%,” said an east-China based producer.

Local sales have been “disappointing for the past several months”, said the major producer.

“Our production costs have gone up, but it’s been difficult for us to even maintain etac pricing stability because [domestic] demand hasn’t kept up with the supply increase,” the major producer added.

“This is a case of classic oversupply,” a northeast Asian buyer said.

Sopo’s maintenance shutdown will tighten supply and support the proposed price hikes by Chinese producers, the buyer said.

“Etac prices may go up a little because of these cost pressure,” the buyer said.

“However, the upcoming capacity expansions will only worsen the oversupply, and will mean that competition among Chinese producers for both domestic as well as the export markets will intensify, so that may limit the upside to any etac price increase,” the buyer added.

($1 = €0.75)

By: Trisha Huang

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