23 November 2012 03:44 [Source: ICIS news]
By Jasmine Khoo
SINGAPORE (ICIS)--Spot epichlorohydrin (ECH) prices in Asia may soon increase after shedding about 16% since late May, with current values now almost at parity with main feedstock propylene, market sources said on Friday.
Lacklustre demand from downstream liquid epoxy resins (LER) industry and China’s oversupply of the material caused ECH prices to tumble for about six consecutive months, they said.
On 20 November, ECH prices were assessed at an average of $1,565/tonne (€1,221/tonne) CFR (cost and freight) CMP (China Main Port), down from $1,860/tonne on 29 May, according to ICIS.
In the key China market, domestic ECH prices also fell by 9.3% to CNY10,250/tonne ($1,643/tonne) DEL(delivered) east China over the same period.
Demand for ECH – which has downstream applications in electrical laminates, adhesives and coatings – may not recover soon as overall consumption is weakening in line with the slowdown in the global economy, but cost-push factors should allow prices to increase.
“The low prices in China are not sustainable. There is no way they can stay at this price. I find it very difficult and cannot explain the situation there [China],” said a source from a regional ECH producer, which mainly sells its cargoes to China.
Domestic prices in China, as well as in the rest of Asia, have continued to decline even though costs of feedstocks were moving in the opposite direction, squeezing the margins for ECH producers.
Taking into account the average current propylene price of $1,345/tonne CFR NE (northeast) Asia at the close of trade on 22 November, ECH only enjoys a price spread of a little over $200/tonne, which is lower than the $250-300/tonne required for ECH makers to cover their cost of production, market sources said.
Between 1 June to the week ending 16 November, propylene prices increased by 7.5% to an $1,265/tonne CFR NE Asia, according to ICIS.
Glycerine, which is an alternative feedstock for ECH production, also had a 4% increase in prices over the same period to $852.50/tonne CFR NE Asia, ICIS data showed.
“It is ridiculous to reduce the prices so much just to sell volumes. If the demand is not doing well, people will not buy no matter how much you decrease your price,” the source from the regional producer said.
“Prices seem to have hit the bottom…it should only go up from now,” he said.
Even buyers are expecting a recovery in ECH prices, but the increase may not be significant.
“It would actually be good for everyone if the ECH market improves to restore some market balance. Propylene is around CNY10,200/tonne, while ECH is also around 10,200/tonne DEL east China…it just doesn’t make sense,” a China-based ECH buyer said in Mandarin.
ECH producers are currently running their plants at a much reduced capacity of 50-60% to prevent losses amid continued weakness in demand.
“There’s no meaning in operating at higher rates now. I will be making a loss the moment I purchase [feedstock] propylene to make ECH. It’s a very, very bad situation. However, if feedstock prices remain high, ECH prices should firm as well,” said a northeast Asia-based producer.
Additional reporting by Hazel Goh and Victor Shi
($1 = €0.78 / $1 = CNY6.24)
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