FocusChina domestic ECH may extend gains as feedstock costs rise

11 July 2012 06:48  [Source: ICIS news]

By Victor Shi and Jasmine Khoo

China domestic ECH may extend gains as feedstock costs riseSINGAPORE (ICIS)--Domestic spot prices of epichlorohydrin (ECH) in China surged by about 10% this week, with a strong likelihood of further increases, driven by rising costs of feedstock propylene, industry sources said on Wednesday.

Spot prices were assessed at yuan (CNY) 11,400-11,500/tonne ($1,790-1,805/tonne) DEL (delivered) east China on 10 July, up by CNY1,000/tonne from the previous week, according to Chemease, an ICIS service in China.

“The [China ECH domestic] price has bottomed out,” said a Chinese producer.

Prior to the spike in domestic prices, ECH values had been hovering at CNY10,300-10,500/tonne DEL east China between late June up to 4 July, after shedding 12% from mid-May because of poor demand from downstream epoxy resins sector.

Cost-push pressures prompted the country’s biggest ECH producer – Shandong Haili Chemical – to hike offers on 5 July, company sources said. The move triggered the uptrend in domestic prices.

The company, which can produce 320,000 tonnes/year of ECH, raised its prices to CNY11,500/tonne DEL east China to keep a healthy product price spread over feedstock propylene, company sources said.

On 3 July, domestic prices of ECH and propylene in China were roughly the same at around CNY10,400-10,600/tonne, according to Chemease.

“Business is unsustainable if the feedstock costs more [than the end-product],” the Chinese producer said.

ECH must at least be priced CNY200-300/tonne higher than propylene for ECH makers to generate margins, industry sources said.

Chinese propylene prices were assessed at CNY10,650-10,750/tonne on 10 July, up by 7.5% from mid-May. Prices have been on an uptrend on the back of tight supply as most local refineries are running at reduced capacity, market sources said.

Meanwhile, import prices of ECH were assessed at $1,800-1,850/tonne (€1,476-1,517/tonne) CFR CMP (China Main Port) on 10 July, unchanged from the previous week, according to ICIS.

Most Asian producers had turned their attention to alternative markets within the region, refusing to lower their offers when domestic ECH prices in the key China market had tumbled.

“We would be more open to discussing prices with Chinese buyers now that [domestic] prices have risen,” a regional trader said.

China is a net importer of ECH, with monthly imports averaging about 2,600 tonnes from January to April 2012, industry sources said.

The country currently has a lean ECH inventory as domestic plants are running at below 50% of capacity since June, with some producers opting to completely halt production to stem losses amid weak demand from downstream epoxy resins sector, industry sources said.

Epoxy resins facilities in the country have been running at reduced rates of 50-60% over the past two months, they said.

ECH is used in the manufacture of epoxy resins, with a growing application in the corrosion-protection coatings as well as electronics, appliances, automotive, aerospace and wind turbine industries.

($1 = CNY6.37 / $1 = €0.82)

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

By: Victor Shi & Jasmine Khoo
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