28 October 2013 00:00 [Source: ICB]
Persistently high inventories and expectations for increased supply weigh on sentiment
Spot butyl glycol (BG) prices into China may extend a decline on the back of lower feedstock costs and weaker supply-demand fundamentals, market sources said on 17 October.
Butyl glycol is used in paints
Buying and selling ideas for regionally produced material moved lower in the week as persistently high inventories in China weighed on market participants’ sentiment.
Expectations of an increase in supply, as well as a decline in feedstock costs in the US and Europe this month, further contributed to a weaker market outlook.
Supply of regionally produced BG is expected to be restored by the end-October restart of PETRONAS Chemicals Group’s (PCG) 60,000 tonne/year BG plant in Malaysia.
In the US, October contract prices for polymer-grade and chemical-grade propylene settled 2.5 cents/lb ($55/tonne) lower. In Europe, October ethylene oxide (EO) prices may decrease after the European ethylene contract price settled down by €35/tonne in October.
Several importers said that BG inventories in east China have been persistently high for most of the year, as an inventory build earlier in the year was exacerbated by the high volume of monthly imports so far in 2013.
China imported 10,674 tonnes of BG in August 2013, a 39% surge from a year earlier, the country’s Customs data showed. The August import volume was an 18% increase from July, according to the data.
“Downstream demand has performed below our expectation this year. At the same time, total BG import volumes have increased compared with last year, so inventories have been persistently high,” said a Chinese importer.
“Nevertheless, China’s BG import reliance is still high. Even though there has been a moderate price softening, BG prices are likely to stabilise around the $1,500/tonne [CFR China] level,” the importer added.
China, the biggest BG buyer in Asia, imported around 125,000 tonnes of BG from US, Asian and European producers in 2012, according to industry sources.
A year-on-year increase in BG output from domestic producer Dynamic (Nanjing) Chemical Industry contributed to the length in supply that has limited the upside to prices in 2013, market sources said.
The yuan-denominated domestic BG prices in east China failed to break the yuan (CNY) 11,800/tonne ($1,934/tonne) ex-tank price level despite importers’ price hike efforts throughout August and September.
“We are coming to the end of the year now, and distributors [in China] will be trying to reduce their year-end inventories,” said a BG producer.
Domestic BG prices in China weakened for the first time since mid-July, capping importers’ buying ideas at $1,500/tonne CFR China on a zero ADD basis for replacement cargoes arriving in October and November.
The prices of imported BG in east China eased to CNY11,600-11,800/tonne ex-tank in the week starting 14 October, shedding CNY100/tonne at the low end of the range. The prices were stable at CNY11,700-11,800/tonne ex-tank throughout September and early October.
“I would not pay more than $1,500/tonne [CFR China] for a spot cargo, that leaves no margins for distributors,” a second Chinese importer said.
Similar to the situation in China, a supply overhang in southeast Asia is limiting the upside to spot BG prices in the region, capping trades at $1,450/tonne CFR SE (southeast) Asia.
Distributors in Thailand, which consumes about 1,000 tonnes of the petrochemical solvent a month, said that the high volume of BG imports each month has resulted in a hefty inventory build that has undermined their domestic price hike initiatives and eroded their trading margins.
“Flooding in eastern Thailand is curtailing demand from the industrial paint and automotive paint sectors. Combined with the persistently high inventories, competition among distributors has become cut-throat because all the distributors are under constant pressure to liquidate inventories,” said a Thai BG distributor.
There is no shortage of supply of either regional or deep-sea material in southeast Asia. Even though PCG’s BG plant is in the middle of a two-month turnaround, a steady inflow of deep-sea cargoes has kept the market well supplied, importers said.
At the same time, the increased product availability has opened up the distribution market to new entrants, resulting in intensified price competition among the growing number of distributors.
“Supply-demand is completely out of balance. For as long as this situation continues, BG distribution will remain a loss-making business,” the Thai distributor added. “[BG] producers are under pressure to recoup their margins, but it is very difficult for distributors to raise prices in the current market,” a separate southeast Asian BG importer said.
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