27 July 2012 00:00 [Source: ICB]
IMF Managing Director Christine Lagarde forecast lower growth
During the week ending July 17, spot bulk BDO prices increased by $50/tonne (€41/tonne) to $2,100-2,200/tonne CFR (cost & freight) China.
Prices had come down by around 24% since the early April high of $2,800-2,850/tonne. The decline was attributed to the falling crude futures, supply glut, and weak demand.
Most of China's BDO producers, including Shanxi Sanwei, Nanjing Bluestar and Fujian Meizhouwan, cut production rates in late May. During the week ending July 17, the average operating rate of China's major BDO producers fell below 50%, down from 50-60% the week before, market sources said.
The reduced BDO supply and increases in the cost of feedstock butadiene (BD) have prompted many sellers and suppliers to firm their offers. 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 sitting on low inventories started purchasing cargoes in anticipation of prices rising, although demand is relatively soft amid the seasonal slowdown in manufacturing.
SOFT DEMAND DOWNSTREAM
BDO buyers include downstream rigid polyurethane (PU), polybutylene terephthalate (PBT) and polytetramethylene ether glycol (PTMEG) industries, segments that 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 of $2,100/tonne is converted to CNY, it exceeds CNY16,000/tonne - much higher than prevailing domestic prices, the trader noted.
DEL China prices rose by CNY200/tonne ($31/tonne) to CNY14,400-15,4000/tonne in the week ending on July 17.
Trading activity on the import front has therefore been subdued over the past few weeks. "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 increase in BDO prices will hold, given the weak demand and the economic outlook.
Last 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% to 8.0%, and said it now expects growth of 8.5% in 2013.
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