Managing expectations

By Malini Hariharan

A spurt in Chinese buying enquiries in the last few days has awakened hopes in some quarters of an upturn in polyolefin pricing with one trader predicting a $50-70/tonne rise in the coming weeks.

The prediction, he says, is based on his experience with the commodity cycle – as buyers in China are willing to pay a little more, producers will soon start holding back material and push for an even higher number.

The question though is to what extent prices can be raised.

Some producers still see an oversupplied market, especially for polyethylene (PE).

“There are some [positive] signals in the PE market but this could just be short-term; we need to watch to market for some more time,” says one producer.

But the rise in Chinese bids has had a knock-on effect in other Asian markets – buyers are no longer clamouring for reductions, he adds.

He also thinks that yesterday’s fire at Formosa Petrochemical’s refinery at Mailiao, Taiwan, could have an impact on sentiment.
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Pic source: Focus Taiwan

The fire at a desulphurising unit has been brought under control but company has shut down the 540,000 bbls/day refinery as a precautionary measure, reports ICIS news.

Operations at Formosa’s two residual fluid catalyst crackers (RFCC), which have a combined capacity of 168,000 bbl/day and can produce around 650,000 tonnes/year of propylene, were temporarily halted. And the company’s olefin conversion unit (OCU), which can produce 250,000 tonnes/year of propylene, was also down, they said.

This is likely to push Formosa to enter the propylene spot market to buy cargoes for its polypropylene (PP) and acrylic acid (AA) plants in China as the it would not be able to supply from Mailiao.

Yesterday’s fire follows a blast at the company’s 700,000 tonnes/year No1 cracker, also in Mailiao, earlier this month. The cracker is not expected to remain offline for 2-3 months.

The company was hoping to defer a late-August turnaround at its No2 cracker but the latest incident is likely to make this difficult.

And the company very likely faces a government investigation into the two accidents.

A Taiwanese media report says that the ministry of economic affairs has asked for a detailed report on yesterday’s fire.

It adds that local resident action groups and the opposition Democratic Progressive Party have demanded that the company halt production at the entire complex rather than just the damaged unit and also stop construction of new plants.

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