OUTLOOK ’13: Asian ECH producers expect slight recovery in prices

02 January 2013 02:46  [Source: ICIS news]

By Jasmine Khoo

ECH is used in making durable coatings for pipes, appliances, as well as for food and drink cans.SINGAPORE (ICIS)--Asia-based epichlorohydrin (ECH) producers are mostly optimistic for the year ahead because of expectations of a recovery in ECH spot prices, which were widely said to have bottomed out following a steady decline since mid-May 2012.

According to ICIS data, ECH spot prices were at $1,850-1,900/tonne (€1,406-1,444/tonne) CFR (cost & freight) China Main Port (CMP) on 15 May before declining steadily throughout the next few months to $1,450-1,500/tonne CFR CMP on 18 December.

This marks a decrease of approximately 21% in ECH prices over the stated period.

The slide in ECH prices was in tandem with the decline in Chinese domestic ECH prices, which fell by yuan (CNY) 2,400-2,500/tonne ($385-401/tonne) throughout the months from CNY12,400/tonne DEL (delivered) east China on 8 May to CNY9,900-10,000/tonne DEL east China on 11 December.

Domestic prices of ECH in China first fell when a major producer reduced its offers from CNY12,400/tonne DEL east China to CNY11,100/tonne DEL east China on 15-22 May.

Furthermore, with the major producer in China not actively offering spot cargoes during the week ended 18 December, most market participants feel that an increase in offers in the near future might be possible, especially since many other Chinese producers have halted productions at their plants.

“It will be difficult to start up a plant again in winter after a period of shutdown,” said a China-based ECH buyer. “It is simply too cold for the machinery to work.”

With expectations of the inability to restart plant operations smoothly, most market participants feel that tighter supply can be expected and prices would have some room to move up.

Turning to the downstream sector, the poor global macroeconomic situation resulted in persistently weak demand from the downstream sectors of liquid epoxy resins (LER), which approximately 95% of ECH goes into.

Because of weak demand from its major consumer sector, ECH prices continued their steady downward trend.

Traditionally, the third quarter of every year would see an increase in demand for ECH from the LER industry as further downstream industries such as electrical laminates, paints and coatings would see an improvement.

With no signs of potential improvement in demand from the downstream LER industry in 2013, most of the ECH market participants expressed that they were hoping for upstream propylene prices to lend support to ECH prices.

During the same period, upstream propylene prices were at $1,250-1,330/tonne CFR northeast (NE) Asia on 18 May and were higher by $5-60/tonne at $1,310-1,335/tonne CFR NE Asia on 7 December.

Firm feedstock propylene prices were weighing heavily on ECH makers’ profit margins since May, given the declining ECH prices, said market participants.

A northeast Asia-based ECH producer, whose ECH unit is running at 70% of its nameplate capacity, said; “I don’t even think of making profits now…we are just trying to minimize losses as much as we can.”

“Prices have more or less bottomed out…if they fall further there is just no meaning in doing business,” the same producer added.

Most market participants feel that prices of ECH on a CFR CMP basis have bottomed out and would gradually recover from now, although most of them are not optimistic and believe the price recovery will be capped by the persistently weak demand from the downstream LER sector.

In the downstream LER industry, prolonged lukewarm market activity and expectations of persistently weak market sentiment were not expected to lend upward support to upstream ECH prices.

Furthermore, with LER prices being said to have bottomed out at $2,500-2,550/tonne FOB (free on board) NE Asia on 11 December, $200/tonne lower than $2,700-2,750/tonne FOB NE Asia seen on 15 May, market participants feel that the outlook for the ECH market remains uncertain though most believe that a slight recovery of prices is possible.

($1 = €0.76 / $1 = CNY6.23)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Jasmine Khoo
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