FocusChina MIBK prices may extend fall on weak demand

05 June 2012 06:14  [Source: ICIS news]

By Trisha Huang

MELBOURNE (ICIS)--Spot methyl isobutyl ketone (MIBK) prices into China may extend a decline from a record high because of weak demand and lower feedstock costs, market sources said on Tuesday.

MIBK prices were assessed as down by close to 9% in the past two weeks to about $2,000/tonne (€1,600/tonne) CFR (cost & freight) China from the record high of $2,190/tonne CFR China for the two weeks ended 22 May.

“We expect to see a further decline in MIBK prices. It’s a matter of time before prices hit $1,900/tonne CFR China,” said a trader.

“However, downstream demand should recover when MIBK returns to a more sensible price level,” the trader added.

Prices into China had risen by 37.3% from the beginning of this year to the all-time high after the late-April shutdown of Mitsui Chemicals’ 30,000 tonne/year plant in Japan tightened the already limited regional spot availability.

Feedstock acetone prices gained 7.4% in the same period to $1,015/tonne CFR China for the week ended 11 May, ICIS data showed.

Mitsui Chemicals’ unexpected plant outage worsened an existing supply shortage in China, which was caused in part by the extended shutdown of Taizhou Petrochemical's 20,000 tonne/year MIBK unit at Taizhou in Jiangsu province since mid-January. The Taizhou plant is operating at about 80% of capacity after resuming production on 2 May.

Record high prices forced MIBK end-users in China to implement production cuts as well as product substitution, which have swiftly reversed the earlier supply/demand imbalance.

“MIBK prices were too high, compared with upstream acetone values, or the prices of other solvents,” the trader said.

Several Chinese MIBK manufacturers said their sales have slowed in recent weeks, as paint and coating makers in early May began switching to lower-priced alternatives, such as butyl acetate (butac), to cut costs.

Meanwhile, heightened fears about the state of the global economy have triggered a broad-based commodity sell-off that sent oil prices to their lowest levels since October 2011, along with the prices of various basic petrochemicals.

Acetone prices into China lost close to 12% in May, ICIS data showed.

 “Downstream buyers are understandably cautious, in view of the broader petrochemical market downturn, and because no-one can predict when prices would bottom out,” a Chinese MIBK producer said.

End-users have been buying smaller quantities, albeit more frequently, in an effort to average down their raw material costs as prices continued to slide, according to the producer.

“However, the extent of the demand contraction and the pace of the price decline have exceeded our expectations,” the producer added.

Domestic MIBK prices in eastern China plunged by nearly 12% to yuan (CNY) 15,500-15,700/tonne ($2,433-2,465/tonne) ex-works this week, from their peak at CNY17,600-17,800/tonne ex-works for the week ended 22 May, according to data collected by ICIS.

“Downstream demand in the coating and paint sectors has never really been strong this year, and now, demand from the rubber chemicals sector is also weakening,” the trader said.

Rubber chemical additives, which are key ingredients in tyre production, account for about 50% of China’s MIBK demand.

Jiangsu Sinorgchem Technology, China’s largest producer of paraphenylenediamine (PPD), this month implemented a further output cut to about 70% of capacity because of high feedstock costs. PPD is a key rubber chemical additive used in the manufacture of tyres.

The rubber chemical additive producer last month curtailed its output by about 10 percentage points to around 85% of capacity, because it faced difficulty in fully transferring the increase in its feedstock MIBK costs to downstream tyre makers.

As demand weakened, the resumption of MIBK output at Taizhou has helped to restore supply.

“Taizhou’s monthly output can more or less offset the spot volumes lost from the outage at Mitsui Chemcials,” said a Chinese end-user, who predicts that domestic MIBK prices may drop to CNY13,000-13,500/tonne by July.

The strong prices seen in China in April and early May also prompted producers in other regions to boost sales to this market, which may hasten MIBK’s price slide. South Africa’s Sasol has increased shipments to China in May and June, according to market sources in China.

“If you compare MIBK and acetone prices, the producers are making a hefty margin, which means there is still a lot of room for MIBK [prices] to fall,” said the Chinese end-user.

($1 = €0.80)
($1 = CNY6.37)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Trisha Huang

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