FocusChina ECH to fall on domestic oversupply as new plants start up

16 August 2012 04:46  [Source: ICIS news]

By Victor Shi and Jasmine Khoo

ECH goes into epoxy resins, which are used in the manufacture of adhesives, coatings, paints and structural parts required by the automotive and aerospace industries.SINGAPORE (ICIS)--Domestic and import prices of epichlorohydrin (ECH) in China will face a strong downward pressure in the near term as new capacity comes on stream despite continued weakness in downstream demand, industry sources said on Thursday.

Some 240,000 tonnes of additional capacity are estimated to progressively go on line in China from mid-August. This meant a 27% increase in domestic production of ECH of 744,000 tonnes/year currently, industry sources said.

On 14 August, spot import prices were assessed at $1,730-1,760/tonne (€1,401-1,426/tonne) CFR (cost and freight) China Main Port (CMP), while domestic prices were at yuan (CNY) 10,700-10,900/tonne ($1,682-1,714/tonne) DEL (delivered) east China, according to ICIS data.

Local producers have lowered their spot offers given no signs of improvement in languid demand from downstream epoxy resins sector, industry sources said.

ECH goes into epoxy resins, which are used in the manufacture of adhesives, coatings, paints and structural parts required by the automotive and aerospace industries.

Majority of Asian producers are currently offering ECH cargoes at around $1,750/tonne CFR CMP.

Poor demand, along with expectations of huge capacity that will flood the Chinese market with supply, caused prices of imports and locally-produced ECH to be on a downtrend since mid-May.

Plant start-ups were actually slightly delayed from the original schedule of late July to early August, according to industry sources.

Trial production is ongoing at Shandong Haili’s new propylene-based 130,000 tonne/year plant, they said. The company is the biggest ECH producer in China.

Three ECH facilities, which will use glycerine as feedstock, are due start up in the near term, namely Jiangsu Yangnong’s 30,000 tonne/year unit and Yihai Kerry’s 50,000 tonne/year unit in Jiangsu province, and Ningbo Huanyang’s 30,000 tonne/year plant in Zhejiang province, market sources said.

 “Most of the new units are scheduled for start-up from mid-to-end August despite the weak demand situation,” said a China-based ECH buyer.

Apparent demand for ECH was at around 450,000 tonnes in 2011, just about half of China’s current capacity of more than 900,000 tonnes/year, according to Chemease, an ICIS service in China.

Meanwhile, ECH producers are struggling to generate margins as declines in product prices were accompanied by a spike in feedstock costs.

On 13 August, prices of propylene – the main feedstock for ECH production – in the Chinese market stood at CNY10,450-10,550/tonne, up by  have increased by CNY200-300/tonne from the start of the month, tracking gains in crude oil prices.

ECH prices need to be higher by CNY1,000-2,000/tonne than propylene for medium-to-small-sized ECH producers to derive decent margins, but at current values, the price spread has narrowed to CNY250-350/tonne – barely enough to cover the freight cost.

“Such [propylene and ECH] price levels are not workable. We [producers] would all be making losses,” said a regional producer, who exports to China and southeast Asia, in Mandarin.

($1 = €0.81 / $1 = CNY6.36)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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By: Victor Shi
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