FocusAsia etac prices may extend gain on ethanol supply shortage

11 September 2012 06:10  [Source: ICIS news]

By Trisha Huang

China domestic ECH may extend gains as feedstock costs rise

MELBOURNE (ICIS)--Prices of ethyl acetate (etac) in Asia may extend a gain on the back of an ongoing ethanol supply shortage, market sources said on Tuesday.

The average price of etac from China, a regional benchmark, has risen by 1.4% since the week ended 29 June to reach $925/tonne FOB (free on board) China for the week ended 7 September, lagging behind the gain in the cost of feedstock ethanol over the same period.

The cost of ethanol, which is typically made from corn and tapioca in China and is used in combination with acetic acid for manufacturing etac, has risen by almost 4% since late June, along with the prices of many food crops.

Even as costs continue to mount, domestic supply of ethanol in China is expected to remain curbed in the near term because of the increased costs of agricultural raw materials, said several etac producers.  

The prices of ethanol rose to yuan (CNY) 6,430-6,650/tonne ($1,014-1,049/tonne) EXW (ex-works) in eastern China for the week ended 7 September, compared with CNY6,150-6,450/tonne for the week ended 29 June, according to data collected by Chemease, an ICIS Service in China.

“Ethanol prices may rise again in September and October because of tight supply,” said a Chinese etac maker. “We may have to start importing ethanol to meet the domestic supply shortfall.”

The ongoing ethanol supply tightness since early July has curbed etac plant operating rates at several facilities in China, which in turn tightened the volumes producers are able to offer to the market.

Jiangmen Handsome Chemical Development in late August reduced its etac output in southern China to about 80% of capacity because of reduced supply of ethanol.

The company switched an etac line at its 320,000 tonne/year etac/butyl acetate (butac) swing plant at Jiangmen in Guangdong province to normal propyl acetate (NPAC) production in a bid to reduce its total ethanol consumption.

Limited ethanol availability has similarly capped Jiangsu Sopo Chemical’s etac output at its 500,000 tonne/year plant at Zhenjiang in Jiangsu province at 50-60% of capacity since late August, which in turn reduced its domestic and export availability.

In the short term, supply of alcohol for industrial use is also facing competition from demand for edible alcohol, which is rising as distilleries build inventories to meet the anticipated demand for the Chinese Mid-Autumn Festival, which falls on 30 September this year.

Chinese etac makers have approached ethanol suppliers in countries including Vietnam and India for potential imports.

“There has been a jump in the number of ethanol purchase enquiries from China,” said a trader of southeast Asian tapioca and ethanol.

“It would be difficult to meet the substantial rise in demand, because supply of tapioca chips from Vietnam is expected to stay tight until December, and export offers are progressively higher,” the trader said.   

Supply of Vietnamese tapioca has been curbed partly because of unfavourable weather conditions, the trader added.

“[Tapioca-based] ethanol may rise to about $800/cbm FOB Vietnam by December, from about $680/cbm FOB [Vietnam] currently,” the trader said. That translates to a potential increase of about 18%.

However, some buyers said there is limited upside to China’s etac prices because of lengthening supply.

The existing supply overhang is expected to worsen further after the commissioning of new plants operated by Wuxi Baichuan Chemical Industrial and Shanghai Huayi Group in August.

Wuxi Baichuan Chemical Industrial is running its new 300,000 tonne/year etac/butac swing plant at Nantong in Jiangsu province at close to 50% capacity, after achieving on-spec etac output in late August.

Shanghai Huayi has achieved on-spec output at its new 200,000 tonne/year etac plant at Wuwei in Anhui province following test runs that began in late July, a company source said.

Producers’ intensifying competition for the available etac export markets in South Korea, Japan, Taiwan and southeast Asia, together with comparatively stable local pricing in those markets, have hindered etac’s potential feedstock-led price increase.

Etac makers in India are also facing an ethanol supply crunch because of disappointing rainfall during this year’s monsoon season.  

Below-average rainfall during the annual monsoon has partly caused a hike in sugar and therefore ethanol prices. Lower distillery operating rates during the monsoon have contributed to the shortage in ethanol supply.

Ethanol in India, the world’s second-largest producer of sugar cane, is typically made from sugar molasses.

Feedstock ethanol prices in September firmed to Indian rupees (Rs) 33-35/litre, about Rs1/litre higher than August. Ethanol prices in August increased by 10-15% from July.

Some producers said they expect ethanol costs to soften from an “uncomfortably high” level when crushing and production resume in November.

However, a producer added that below-average rainfall this year may result in a poor harvest, thereby keeping sugar molasses and ethanol costs at a high level.

While earlier talk of a “failing monsoon” has been eclipsed by heavier rainfall in recent weeks, “the damage has already been done”, said the producer.

India’s Somaiya Group said it may reduce the operating rate at its two etac plants in Maharashtra if supply of feedstock ethanol continues to be tight.

It has been difficult to procure sufficient ethanol to run its etac plants at full rates, and Somaiya will make a decision to adjust its output level in the coming weeks, should ethanol availability remain limited, a company source said.

($1 = CNY6.34 / $1 = Rs55.44)

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

By: Trisha Huang

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