27 June 2013 06:09 [Source: ICIS news]
By Trisha Huang
MELBOURNE (ICIS)--Spot methyl isobutyl ketone (MIBK) prices in Asia may end a seven-month decline and stabilise in July after weak margins prompted several regional producers to curtail output in June, market sources said on Thursday.
Spot MIBK prices into China, the regional benchmark, have slumped by 15% since December 2012 to settle at an average of $1,735/tonne (€1,336/tonne) CFR (cost & freight) China on 25 June, according to data compiled by ICIS. The price fall was spurred by capacity expansion in South Korea and the consequent surge in spot availability.
Despite periods of volatility, feedstock acetone costs have remained comparatively high throughout this period, severely compressing Asian MIBK producers’ margins.
The price spread between MIBK and acetone into China narrowed to about $620/tonne in late June 2013 from $925/tonne in early December 2012, ICIS data showed. The margin squeeze prompted several MIBK makers across Asia to slash output this month in a bid to stem further margin erosion.
With several spot MIBK deals for June sealed at $1,720-1,740/tonne CFR China, a number of market participants said that they expect July spot prices to be largely steady at this range.
Ample product availability of MIBK along with stable-to-soft upstream acetone prices is likely to undermine any price hikes proposed by MIBK producers. At the same time, the relatively high feedstock acetone prices along with reduced regional MIBK output should provide a floor for MIBK prices, the market sources added.
“Our margins have been under pressure for several months now,” said a MIBK producer.
MIBK output in Japan is already at a reduced level, with Mitsubishi Chemical’s 20,000 tonne/year plant in Mizushima currently undergoing a five-week maintenance shutdown.
Other regional MIBK producers are curtailing supply by either lowering their plant operating rates or by bringing forward scheduled plant maintenance.
“The current prices are unworkable for producers,” a second MIBK maker said.
“Our options are either to reduce output or keep selling at negative margins. Right now, the sensible option is to cut output,” the second producer added.
South Korea’s Kumho P&B Chemicals decreased the operating rate at its 55,000 tonne/year MIBK plant in Yeosu to 85% capacity over the weekend of 22-23 June from 85-90% capacity previously because of weak market conditions.
In China, Zhenjiang LCY General Chemical, a unit of Taiwan’s LCY Chemical, brought forward a planned turnaround at its 24,000 tonne/year MIBK plant in Jiangsu province, market sources said.
The producer took its plant off line during the week of 10 June, instead of in late July as initially planned, the sources added.
Furthermore, Taiwan’s LCY Chemical reduced the operating rate at its 20,000 tonne/year MIBK plant in Linyuan to about 70% capacity in mid-June from more than 80% capacity previously in a bid to protect its margins.
In China, the yuan-denominated prices of imported MIBK have similarly been under downward pressure .
Aside from ample supply from both international and local sources, demand for MIBK is weakening as producers in the key derivative rubber chemical additive sector are feeling the impact of slowing sales.
Furthermore, buying activity from the other key downstream coating and solvents sectors is expected to weaken as higher northern hemisphere summer temperatures signal the start of the seasonal lull in demand.
The impact on domestic MIBK prices from the high volume of imports was especially evident in south China. Prices in south China are now lower than those in east China, a reversal of historical price trends.
In east China, the prices of imported MIBK were at yuan (CNY) 13,600-13,700/tonne ($2,211-2,228/tonne) ex-tank in the week, compared with CNY13,100-13,200/tonne ex-tank in south China, according to data collated by ICIS.
Moreover, the price decline in south China was accelerated by the increased selling pressure felt by distributors amid lower crude oil prices in recent weeks, said an importer.
“Prices are unlikely to increase because there is simply too much inventories in China,” a separate importer said.
($1 = €0.77, $1 = CNY6.15)
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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