Price and market trends: China propylene oxide market to soften on weak demand

07 December 2012 10:32  [Source: ICB]

Domestic spot prices of propylene oxide (PO) in China may fall for the rest of the year as demand typically weakens at the onset of the winter season, leading to oversupply of the material, sources said.

PO was at yuan (CNY) 11,400-11,600/tonne ($1,830-1,862/tonne) DEL (delivered) in east China on 23 November, down by CNY200-250/tonne from the start of the month, according to Chemease, an ICIS service in China.

PO is the feedstock for polyether polyols that go into polyurethanes (PUs), used as thermal insulation material for walls - demand for which is tied to construction.

Construction usually slows down towards the year-end because of extreme cold weather, which lasts to February in China.

Demand for raw material is waning as downstream polyether polyols facilities are running at reduced rates of about 70% as producers deal with weak sales and inventory pressure, sources said.

Given the weakness in demand, some polyether polyols makers have lowered their offers and this further weighed on the Chinese PO market, they said.

Offers for polyether polyols in east China are being quoted at CNY12,300-12,400/tonne, down by CNY500-650 from the start of November, market sources said.

For the most part of November, supply and demand for PO had been relatively balanced, allowing prices to fluctuate at a narrow range of between CNY11,400-11,600/tonne, traders said.

PO facilities in China are currently running at about 90% of capacity, industry sources said.

Major PO producer Wudi Xinyue Chemical has ramped up production in November, raising the run rate at its plants at Binzhou in Shandong province to 85% from 61% in the previous month, a company source said.

The company switched to producing PO at one of its epichlorohydrin (ECH)/PO swing plants in view of the poor ECH market.

Another producer, Befar Group, is running its PO plants with a total capacity of 195,000 tonnes/year at Binzhou city at full capacity.

PO makers may cut production if market conditions deteriorate further, market sources said.

Additional reporting by Vikki Shen

By: Viola Pan
+65 6780 4359

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