Intermediates: China ECH to fall on domestic oversupply

23 August 2012 11:38  [Source: ICB]

Domestic and import prices of epichlorohydrin (ECH) in China will face strong downward pressure in the near term as new capacity comes on stream despite continued weakness in downstream demand.

Some 240,000 tonnes of additional capacity are slated to come on line in China, most of it during the second half of August, increasing domestic production capacity to 984,000 tonnes/year, industry sources said.

On August 14, 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 reported.

 

Rex Features

Low ECH prices will affect products such as paints

NEEDED FOR EPOXY RESINS

ECH is a key feedstock for epoxy resins, which are used in the manufacture of adhesives, coatings, paints and structural parts required by the automotive and aerospace industries.

Most Asian producers were ­offering ECH cargoes at around $1,750/tonne CFR CMP on ­August 14.

Poor demand and the imminent flood Chinese production capacity have put the price of imports and locally-produced ECH on a downtrend since mid-May.

Plant start-ups were 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.

PLANTS TO USE GLYCERIN

Three ECH facilities that will use glycerin as feedstock are due to start up soon - 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, or just about half of China's current capacity of more than 900,000 tonnes/year, according to Chemease, which is an ICIS service in China.

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

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

For medium and small ECH producers to derive decent margins, ECH prices must exceed propylene by CNY1,000-2,000/tonne, but at current values, the price spread has narrowed to CNY250-350/tonne - barely enough to cover freight costs.

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


Author: Victor Shi and Jasmine Khoo



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