23 September 2013 00:00 [Source: ICB]
Competitive ethyl acetate (etac) offers from India and the Middle East may stem the feedstock-driven etac price increase proposed by Chinese producers in September, market sources said on 10 September.
Etac prices are poised for a rebound from a three-year low as Chinese producers proposed to increase prices by $5-10/tonne (€3.80-7.60/tonne) to $865-870/tonne FOB (free on board) China, on the back of the moderate gains in their ethanol and acetic acid feedstock costs in recent weeks. The severe margin erosion since late 2012 has made the corresponding etac price increase necessary, Chinese etac producers said.
The average price of etac sold by China, the regional benchmark, has slumped by 7.3% since October 2012 to $860/tonne FOB China in early September. Feedstock acetic acid prices were up by 1.8% at $432.50/tonne FOB China over the same period.
“[Etac] prices have not kept up with [the gains in] acetic acid prices. Acetic acid prices may firm up further because supply is being tightened by plant maintenance in September,” said a Chinese etac producer.
Co-feedstock ethanol prices in eastern China rose by yuan (CNY) 50/tonne at the low end of the range to CNY5,650-6,050/tonne EXW (ex-works) in early September, according to Chemease, an ICIS service in China.
Etac prices in China began to fall in October 2012, after the start-up of new plants operated by Wuxi Baichuan Chemical Industrial and Shanghai Huayi Group exacerbated an existing supply overhang and intensified competition among Chinese producers for shares in the existing export markets. Prices were last below $860/tonne FOB China in October 2010.
China, which has a nameplate etac capacity of approximately 3m tonnes/year, is the world’s largest etac producer and net exporter.
Shipments from Chinese producers to buyers abroad totalled 414,000 tonnes in 2012, led by sales to Japan, South Korea and Taiwan, the country’s customs data showed.
However, competitively-priced etac offered by Indian and Middle Eastern producers, along with currency weakness across developing Asian economies, may stem the feedstock-driven price increase proposed by Chinese etac makers, market sources said.
Rising sales of Indian etac into South Korea in 2013 have reduced the latter’s demand for material from China. Unlike etac of Chinese origin, which is subject to prohibitive anti-dumping duties (ADD) and a 5.5% import duty, a free trade agreement between India and South Korea has exempted Indian etac from tariffs in South Korea.
INDIA CURRENCY IMPACT
The approximately 20% depreciation of the Indian rupee against the US dollar in 2013, and the subsequent drop in Indian producers’ US dollar-denominated export offers, have boosted South Korean importers’ buying interest for Indian etac.
The weak Indian rupee has at the same time boosted Indian etac makers’ export selling interest, as they expect to benefit from the potentially better netback offered by dollar- and euro-denominated export sales.
“The exchange rate means that it makes more sense to export [etac],” said an Indian etac maker.
Furthermore, the currency depreciation has strengthened the competitiveness of Indian etac in the international market, as producers were able to reduce their export selling targets to $860-890/tonne FOB India in September, compared with $900-920/tonne FOB India in August.
“Chinese [etac] producers are keeping their offers high, but Indian producers’ offers have become more competitive because of the rupee depreciation,” said a South Korean importer.
Even as Indian etac producers boost their shares in the Asian market, Saudi International Petrochemical Co (Sipchem) is creating further competition for Chinese producers in Asia, market sources said.
“Some southeast Asian importers were bidding for cargoes at below $900/tonne [CFR (cost & freight) SE (southeast) Asia], after they heard that Middle Eastern material was available at this price, but we can’t match such bids because our feedstock costs have gone up,” said a separate Chinese etac producer.
Sipchem commercially started up its 100,000 tonne/year etac/butyl acetate (butac) plant in Jubail on 1 September, the company said.
“As competitively-priced material continues to erode Chinese producers’ market share in Asia, [the Chinese producers] will be under increasing pressure to win back their market shares,” said an Asian importer.
As rising competition from India and Saudi Arabia weakened demand for Chinese material, the currency weakness in southeast Asia is a further hurdle faced by Chinese producers in their push for higher prices.
The recent depreciation of currencies, including the Indonesian rupiah and the Thai baht, served to further crimp petrochemical import demand amid a broader economic slowdown.
Demand for etac from the downstream paint and thinner sectors in Thailand, which entered a recession following two consecutive quarters of economic contraction through June, is weakening as the pace of car manufacturing and building construction slows, local importers said.
“Thailand is now well and truly in recession – a lot of people can’t even make their installment payments [for vehicles purchased under the government’s first car buyer incentive scheme]. If you go to the car production area in eastern Thailand, you will see oceans of new cars parked there without buyers,” said a Thai etac importer.
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