FocusChina’s MTBE prices to bottom out soon on tight supply

20 June 2012 07:32  [Source: ICIS news]

By Hedy Dong

SINGAPORE (ICIS)--Prices of methyl tertiary-butyl ether (MTBE) in China are expected to bottom out before July when low supply meets rising demand, market sources said on Wednesday.

Ex-terminal barge prices of MTBE in south China fell from CNY9,450-9,550/tonne ($1,486-1,502/tonne) in early April to CNY7,550-7,650/tonne as of 19 June, and in Shandong they dropped from CNY9,000-9,050/tonne to CNY7,350-7,450/tonne, according to ICIS C1, an ICIS service in China.

The plunges were primarily caused by sluggish demand from gasoline blenders, which consume around 90% of the country’s MTBE use, market sources said.

Although gasoline enters peak season in June, demand of blended gasoline has been weak because of quality issues.

There are increasing cases of engine problems from car drivers who filled their tanks with the blends.

The present prices are at their bottom and there’re no room for further decline, market sources said, citing cost of production and international prices.

“If we cut prices to below CNY7,500/tonne, we’ll turn into losses,” an east China-based producer said in Chinese.

Many producers have suspended production because of weak demand.

Shandong Qiwangda shut its 80,000 tonne/year MTBE unit on 11 June for maintenance till the middle of July, while Hebei-based Zhongjie Petrochemical took off line its 30,000 tonne/year MTBE plant in late May for 45 days’ maintenance, according to company sources.

Producers say price reduction is no longer an option for boosting sales.

“We will not cut prices, our [production] cost is there,” a producer said.

Meanwhile, traders are no longer importing cargoes because of high cost of the imported material.

Overseas suppliers are selling cargoes at $1,050/tonne (€830/tonne) CFR (cost and freight) China, equivalent to CNY7,900/tonne after tax.

That is about CNY300/tonne higher than domestic cargoes.

Some traders expect demand to pick up, which had remained weak this year because of gloomy economic situation, in July when gasoline prices are expected to come down.

The gasoline retail price may come down next month because the government determines these prices on the basis of 22-day moving average of crude prices, which have been lower during this time.

“The lower gasoline price may attract consumption," an industry source said.

MTBE consumption may also get a boost because July to September is the peak travel period in the country.

“The MTBE supply and demand may balance out in the short-term,” an industry source in east China said.

However, there is no support for crude at the moment with the European debt crisis keeping a lid on its prices, the trader added.

“Our gasoline and MTBE inventory was lower, but we dare not buy in falling [crude] oil environment. If crude strengthens in the near future, we may consider buying, ” a trader said. 

($1 = CNY6.36 / $1 = €0.79)

By: Hedy Dong

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