FocusAsia BG may extend gains on feedstock cost, supply disruption

08 August 2013 05:55  [Source: ICIS news]

By Trisha Huang

BG is a solvent used in paints and surface coating.MELBOURNE (ICIS)--Spot butyl glycol (BG) prices in Asia may extend a rebound from an18-month low on the back of firming feedstock prices and supply disruption, market sources said on Thursday.

Spot BG prices into China, the regional benchmark, settled at $1,480/tonne (€1,110/tonne) CFR (cost and freight) China on a zero-antidumping duty (ADD) basis, up by 1%  from two weeks ago, according to data compiled by ICIS.

Prior to the rebound, BG prices plummeted by 14% since mid-March to settle at an average of $1,465/tonne CFR China on a zero ADD basis on 24 July, the lowest close since January 2012, ICIS data showed.

The price slump since March was spurred by the 19% plunge in feedstock n-butanol (NBA) prices in northeast Asia, along with a hefty BG inventory build-up over the same period, ICIS data showed.

Prices of the solvent that is used in paints and surface coating may rise further, as reduced product availability from Malaysia’s PETRONAS Chemicals Group (PCG), along with firming feedstock ethylene oxide (EO) prices, bolstered selling sentiment, market sources said.

BG producers’ selling indications rose to a minimum of $1,500/tonne CFR China for August shipment, following earlier August deals sealed at $1,460-1,480/tonne CFR China on a zero ADD basis. Offers for northeast Asian material strengthened to $1,540-1,550/tonne CFR China.

“There is no seller interested to talk to you at lower than $1,500/tonne [CFR China] now,” said a BG importer in China.

China, the biggest BG importer in Asia, purchased around 125,000 tonnes of BG from Asian, European and US producers in 2012, according to industry sources.

PCG’s 60,000 tonne/year BG plant, along with its other EO derivatives units, were taken off line on 21 June because of an equipment failure at its upstream 140,000 tonne/year EO plant at the site.

Output at PCG’s BG production facility in Kerteh has resumed, the company said on 31 July. A force majeure that was declared on its EO and derivatives supplies on 28 June was lifted on 30 July, according to a company source.

Even though it has restarted EO and BG production, the Malaysian producer will continue to put its customers on allocations as it has limited time to build up its inventories ahead of a two-month turnaround starting in September. The company source said that PCG will be able to offer very little material to China in the coming months as it needs to prioritise its customers in southeast Asia.

Malaysian BG accounts for roughly 20-25% of China’s total imports in 2012 and the impact on prices should become increasingly apparent, several market sources said.

In the feedstock sector, EO prices are being well supported by the recent gains in the key derivative monoethylene glycol (MEG) prices, which rose for five consecutive weeks, ICIS data showed.

Supply of deep-sea BG has meanwhile been curtailed by the prohibitive ADD levied on BG of US and European origin, which has sidelined some producers.

“We have not been actively offering material to China in recent months, as we are getting much better netback selling to Latin America, Europe and the Middle East,” said a US BG producer.

Firming feedstock EO costs and the prospect of tighter supply prompted Chinese BG importers to implement price hikes in the domestic market from mid-July, spurring a rebound in the yuan-denominated BG prices in China.

The rebound in the yuan-denominated prices of imported BG in China entered its fourth week, rising to yuan (CNY) 11,500-11,600/tonne ($1,879-1,895/tonne) ex-tank in east China for the week ended 7 August, after bottoming out at CNY11,200-11,300/tonne ex-tank in early July, according to data collated by ICIS. 

However, a weak outlook in the cost of co-feedstock NBA, along with still ample inventories in China, may moderate the pace of BG’s price rebound, some importers in China said.

“[BG] inventories have dropped to a manageable level, but are still on the high side,” said a separate Chinese importer.

Buying activity from the downstream coating sector remains curtailed by the unusually high summer temperatures in parts of China. As such, the pace of further domestic BG price gains is likely to be moderate and gradual, said some importers.

Moreover, any supply shortfall may be offset by restored output from a domestic Chinese BG producer along with ample supply from South Korea, the importers said. 

BG as well as EO production at China’s Dynamic (Nanjing) Chemical Industry has resumed, while South Korea’s Lotte Chemical in late July ramped up to full production at its BG plant as it expects market conditions to improve.

The long term outlook for EO and NBA prices in China remains bearish because the capacity of both feedstocks is undergoing rapid expansion.

Dynamic (Nanjing) Chemical, which specialises in glycol ethers production, is set to start up a new 120,000 tonne/year EO unit in the second quarter of 2014.

“We really can’t see any material growth in Chinese [BG] demand. The recent [BG] price rebound was a response to tightened supply from Malaysia, which is a relatively short-term issue,” the US BG producer said.

($1 = €0.75 / $1 = CNY6.12)

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

By: Trisha Huang

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