OUTLOOK ’13: Volatile PO prices in Asia lead to cautious outlook

27 December 2012 01:59  [Source: ICIS news]

By Ryan Yue

SINGAPORE (ICIS)--Participants in Asia’s propylene oxide (PO) spot market are notably conservative about its price outlook following a year of huge fluctuations in the spot values in China, the region’s largest consumer of PO.

Spot PO prices had fluctuated between the extremities of a year-high of $1,900/tonne (€1,444/tonne) CFR (cost & freight) China in late February because of a spring-time buying surge and a year low of $1,285/tonne CFR China in late June because of weak demand from the downstream polyether polyol industry, according to ICIS data.

Most market players were sticking to the 2013 GDP growth target of 7.5% in China as a baseline to provide rationalisations for predictions of PO prices in the first quarter.

The GDP growth target was the same as that predicted for 2012 previously.

Several market participants agreed that the market situation in the lead up to the Lunar New Year will be similar to that in 2012 as it is traditionally a peak buying period.

“A surge in buying interest is expected as traders and end-users seek to build inventories before the Lunar New Year,” said a trader in China.

“I will have to compare the spring time buying volume with the previous year before confirming if the market situation is similar,” the trader added, noting his reservations.

Market participants also said that considerable import supply tightness in January from the shutdowns at two major PO plants in Thailand and Saudi Arabia will help to bolster PO spot prices in the weeks ahead of the Lunar New Year.

However, not all the market participants were as optimistic.

“Even the sudden shortfall of [PO] imports could not support spot prices. Business conditions among [downstream] polyether polyol producers were very poor and I expect the situation to continue into next year,” a Chinese PO trader said, referring to the period between 7 October and 5 November when Ellba Eastern had twice declared a force majeure on PO supply from its PO/styrene monomer (SM) plant in Singapore.

According to ICIS data, PO spot prices fell from $1,615/tonne CFR China on 12 October to $1,480/tonne CFR China on 9 November, reflecting weak demand from the downstream polyether polyol sector.

Meanwhile, US-based Dow Chemical, a major regional producer with a 390,000 tonne/year hydrogen peroxide to propylene oxide (HPPO) plant in Thailand, expects 6-7% of GDP growth in China in 2013.

“We are not planning on any big bounce-back but are beginning to see better buying patterns emerge, and would expect 6-7% economic growth in China in 2013 – still less than in previous years,” said Andrew Liveris, CEO of Dow Chemical, at a media event.

On the supply front, three PO plants totalling 500,000 tonnes/year of production capacity are scheduled to start up in 2013.

These include Jilin Shenhua and Jilin North Chemical Co’s (JNCC) joint venture 300,000 tonne/year HPPO plant in Jilin province, Sanyue Chemical’s 100,000 tonne/year epichlorohydrin (ECH)/PO swing plant in Shandong province and Shandong Jinling’s 100,000 tonne/year ECH/PO swing plant, which is also located in Shandong province.

However, most market players in China do not expect these capacity additions to have a significant impact on PO spot prices.

“The start-up of Shandong Jinling’s [ECH/PO swing] plant has constantly been plagued by delays and I do not expect it to keep to its schedule this time around,” said a local producer based in northeast China.

The plant is scheduled to start up in June 2013, according to market sources.

“It is also not certain if Shandong Jinling will choose to produce ECH or PO at the plant,” the source added.

Furthermore, construction works at Jilin Shenhua’s HPPO plant will only be completed in October 2013 and is unlikely to impact the domestic PO market until the third quarter.

“[Jilin Shenhua] is expected to supply cargoes only in November and December after performing trial runs in October [2013],” said a local major based in eastern China.

In addition, South Korea’s SKC Corp is scheduling a month-long shutdown at its 175,000 tonne/year PO/SM plant in March for preventive maintenance.

SKC Corp will also shut its 150,000 tonne/year HPPO plant for two weeks in March because of regular maintenance of the electrical transformer which provides voltage step-down for the plant.

These shutdowns could cause some PO imports to China to be diverted to South Korea to satisfy the shortfall in PO supply in March and April. Several market sources said that the shortfall will be around 20,000 tonnes.

SKC is the sole producer of PO in South Korea.

Meanwhile, participants in the PO and downstream propylene glycol (PG) market were closely monitoring the start-up of SCG-Dow group’s new 150,000 tonne/year PG plant in Thailand.

Market sources said that the internal consumption of PO at SCG-DOW’s PG plant will have a sizeable impact on SCG-DOW’s PO exports to China. The plant’s internal consumption is estimated at 50,000-60,000 tonne/year.

($1 = €0.76)

By: Ryan Yue
+65 6780 4327

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