Petrochemicals: NE Asia propylene uptrend may fizzle out on weak demand

30 April 2012 00:00  [Source: ICB]

Propylene prices in northeast Asia look set to end their strong uptrend as appetite for spot cargoes has weakened amid a poor showing from derivative markets, industry sources said.

Spot prices touched a fresh seven-month high of $1,500-1,560/tonne (€1,140-1,186/tonne) cost and freight (CFR) northeast Asia (NE) Asia during the week ended April 13.

Recent outages at the crackers of Taiwan's CPC and Japan's Showa Denko, combined with production issues at propylene units in the region, have fuelled the price spikes.

But CPC restarted its 500,000 tonne/year No. 5 cracker in Kaohsiung the week of April 16 following an unplanned shutdown from April 6, while some crackers in South Korea were also coming back on stream after scheduled maintenance.

Honam Petrochemical restarted its newly expanded 1m tonne/year cracker in Yeosu, South Korea, on April 9 following a turnaround from March 1.

Yeochun NCC (YNCC) also resumed operations at its 578,000 tonne/year No. 2 cracker in Yeosu on April 18. The cracker was shut on March 20 for scheduled maintenance.

"We think that prices have peaked," an olefins trader said. Discussions in the FOB (free on board) Korea market had started softening on April 13, with deals heard at $1,470-1,480/tonne compared with fixtures done at up to $1,500/tonne in the second week of April for May shipments.

IMPACT ON PP

Market sources said some Korean propylene producers are selling more propylene and maintaining derivative polypropylene (PP) production at below 100% capacity because of better margins from the sale of the monomer.

PP yarn spot prices were assessed at $1,470-1,500/tonne CFR China the week ending April 13 - lower than feedstock propylene values. Offers of spot propylene cargoes arriving in May were at $1,540-1,560/tonne CFR NE Asia during that week but failed to entice buyers in the leading China market.

PP makers typically need a spread of around $150/tonne with propylene prices to break even.

Chinese end-users said they could not afford to buy propylene at above $1,500/tonne as they would be making losses.

In addition, domestic material was available much cheaper with prices at yuan (CNY) 10,300-10,400/tonne ($1,635-1,651/tonne) ex-tank Shandong on April 18, which is the import equivalent of less than $1,400/tonne.

Quote: Recent cracker outages, combined with production issues at propylene units, have fueled the price spikes

POOR DEMAND KEEPS US APRIL PROPYLENE CONTRACTS FLAT

US April propylene contracts settled at a rollover to March, meaning April polymer grade propylene (PGP) was at 77.50 cents/lb ($1,709/tonne, €1,299/tonne) and April chemical grade propylene (CGP) at 76 cents/lb.

A trader said: "There is just no demand at these [price] levels. April is going to be a brutal month."

Two US producers had proposed price increases of 2 and 5 cents/lb, on the back of high gasoline alkylation values and tight supply resulting from the US cracker turnaround season.

However, the 5 cent/lb nomination received very little traction, sources said. Spot PGP prices have dropped throughout April, falling to 69.75 cents/lb on April 19, down from 78 cents/lb at the start of the month.

US propylene contracts typically settle at the beginning of the month being negotiated.

However, April negotiations were slowed by buyer pushback. Demand from the polypropylene (PP) market remains soft, with buyers staying out of the market and buying on a hand-to-mouth basis.

Author: Peh Soo Hwee and John Dietrich

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