FocusAsia BDO prices rebound on production cuts, outlook uncertain

19 July 2012 06:31  [Source: ICIS news]

By Judith Wang

BDO derivatives are used in constructionSINGAPORE (ICIS)--Asian butanediol (BDO) prices have rebounded by $50/tonne (€41/tonne) on the back of ongoing production cuts and rising feedstock prices, but market players said on Thursday that they were uncertain as to how long the values will stay firm.

Asian spot bulk BDO prices rose to $2,100-2,200/tonne CFR (cost & freight) China week-on-week on 17 July, according to ICIS data.

Prices had had come down by around 24% since early April when they were at a high of $2,800-2,850/tonne. The decline was attributed to the falling crude futures, supply glut, and weak demand, according to market sources.

Most of China’s BDO producers including Shanxi Sanwei, Nanjing Bluestar and Fujian Meizhouwan cut their production rates to cope with squeezed margins and soft demand in late May, sources said.

The average operating rate of China’s major BDO weakened at below 50% capacity during the week, down from the previous week’s 50-60%, market sources said.

The subsequent decreased BDO supply, combined with the recent rising prices of feedstock butadiene (BD), boosted the market and forced many sellers and suppliers to firm their offers, the sources said.

Feedstock BD spot prices rose by $100/tonne to $2,400-2,500/tonne CFR NE Asia in the week ended 13 July.

“The BD prices are rising, so we cannot drop our BDO prices anymore. We are under much pressure now,” a producer said.

On the demand front, buyers who are sitting at low inventories started purchasing cargoes in anticipation of prices rising, although demand was relatively soft in the off-peak manufacturing summer season.

BDO buyers include downstream rigid polyurethane (PU), polybutylene terephthalate (PBT) and polytetramethylene ether glycol (PTMEG) industries, which have seen their own demand remaining soft amid global economic uncertainty.

China’s downstream PU and PBT – used heavily in construction materials - have not performed very well so far in 2012, market players said.

“We have not traded BDO imports for a few months,” a trader said, adding: “If we build stocks and cannot find buyers we will face a big risk.”

If the current import price at $2,100/tonne was converted to CNY equivalent, it comes to above CNY16,000/tonne - much higher than prevailing domestic prices - the trader added.

The DEL China prices was also up by CNY200/tonne ($31/tonne) to CNY14,400-15,4000/tonne in the week ended on 17 July, according to ICIS.

The trading activity on the import front has therefore been subdued in the past few weeks because of a wide gap between cheap domestic material and higher import costs, sources said.

“The import cargoes are too expensive for us, so we reduced our procurement this year because of the weak exports [of downstream products],” an end-user said.

Most market players are unsure if the price rise will sustain, given the weak demand amid China’s and global economic slowdown this year.

Earlier this week the International Monetary Fund (IMF) cut its forecast for global economic growth and said that emerging market nations, long a global bright spot, are now being dragged down by Europe.

The IMF cut its 2012 growth forecast for China from 8.2 percent to 8.0 percent, and said it now expects growth of 8.5 percent in 2013, down from the 8.8 percent that had previously been forecasted.

Later on 18 July IMF warned that the European sovereign debt and financial crisis has reached “a new and critical stage” and that the euro currency union is at risk of collapse.

The IMF said despite major policy actions, financial markets in parts of the European region remain under acute stress, raising questions about the viability of the monetary union itself.

Any exacerbations in already worrying financial crisis in Europe will exert downward pressure on Chinese exports to the continent thus making BDO outlook even more uncertain.

($1 = €0.82 / $1 = CNY6.37)

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

By: Judith Wang
+65 6780 4359

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