FocusTepid demand, supply glut to cap Asia polyacetal price gains

02 October 2012 06:16  [Source: ICIS news]

By Heng Hui 

SINGAPORE (ICIS)--Asia’s spot polyacetal (POM) prices may move in a tight range this month, with inventory piling up given persistent weakness in demand amid the global economic gloom, market sources said on Tuesday.

Prices were assessed at $1,550-1,600/tonne (€1,209-1,248/tonne) FOB (free on board) NE (northeast) Asia and at $1,550-1,650/tonne CIF (cost, insurance and freight) China in the week ended 25 September, according to ICIS.

POM prices had fallen by around $100/tonne since May this year, when ICIS started tracking the market.

Buying interest has been persistently low, with northeast Asian producers facing competition in the key China market from domestically produced and lower priced material, market sources said.

Asia is saddled with high POM inventory, forcing regional producers to cut operating rates amid squeezed margins, they said.

Take-up of the product in China will come to a halt in the week ending 5 October, as the country goes on a week-long celebration of its National Day.

World demand for POM is estimated at 810,000 m tonne/year, with Asia accounting for more than 60% of the total.

POM’s main applications are in the automotive and electrical sectors, which are experiencing falling demand as consumer spending weakens in the US, the debt-saddled eurozone and slowing Asian economies, including China.

Automobile manufacturers have been cutting production, taking into account weaker demand.

Statistics from the China Association of Automobile Manufacturers (CAAM) showed that China produced 10.0% less automobiles in July this year from the same period last year, and 6.15% lower than June levels.

Concerns about the global economy still linger, weakening consumer confidence and purchasing power, according to POM buyers.

The US’ third quantitative easing measure announced on 13 September initially triggered expectations of better demand in general that will flow through the POM sector, as this will, in effect, flush the global financial system with liquidity.

For Japanese producers, the strong yen against the US dollar has kept their cost of production high, stripping them of ability to bring down offers.

Cost-push factors more than demand will drive up POM prices in the near term, market sources said.

The commodities markets’ initial exuberance over the QE3 implementation will soon wear off with product prices likely to lose their upward momentum with no material improvement in sales volumes.

China, which is the biggest importer of POM in Asia, saw a 15% month-on-month increase in exports of the material in July at 5,528 tonnes, while imports grew a minimal 3.3% to 18,311 tonnes from June, according to China Customs.

Spikes in commodity prices may also not be welcomed in China as these ultimately lead to higher consumer prices, which the country has been working to control while continuing to promote economic growth.

China’s economy is slowing down as its major exports markets – Europe and the US – continue to struggle with their respective financial and economic problems.

($1 = €0.78)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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By: Heng Hui
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