Price and market trends: Asia ECH may rebound after 16% fall over six months

29 November 2012 18:47  [Source: ICB]

ECH producers run their plants at a reduced capacity of 50-60% to prevent losses amid continued weakness in demand

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 say.

Lacklustre demand from the downstream liquid epoxy resins (LER) industry and China's oversupply of the material caused ECH prices to tumble for about six consecutive months.

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, while in the key China market, domestic ECH prices fell by 9.3% to CNY10,250/tonne ($1,643/tonne) DEL(delivered) east China.

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 global economic slowdown, 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," said a source from a regional ECH producer that 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.

Based on the average 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 production costs, 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.

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.

"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 bottomit 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," said a northeast Asia-based producer.

"It's a very, very bad situation. However, if feedstock prices remain high, ECH prices should firm as well."

Additional reporting by Hazel Goh and Victor Shi

By: Jasmine Khoo
+65 6780 4359

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