Asia adipic acid hits 4-month low; firm benzene to lend support

By Judith Wang

SINGAPORE (ICIS)–Spot adipic acid prices in Asia tumbled to a four-month low this week as demand typically weakens towards the end of the year, and amid increased supply from the key China market, industry sources said on Friday.

On 13 November, adipic acid cargoes from China were assessed at $1,550-1,600/tonne (€1,147-1,184/tonne) CFR (cost and freight) NE (northeast) Asia, while those coming from other sources such as Japan, South Korea and Europe were assessed at $1,780-1,830/tonne CFR NE Asia – levels last seen in  July, according to ICIS data.

Prices for cargoes of China origin have been falling since mid-October, shedding 6%, while those of material from other sources have shed 2% from the end of last month, the data showed.

Peak demand from downstream shoe sole and polyurethanes (PU) sectors usually occurs in August-September and begins to taper off in October, industry sources said.

“It is off season now, we did not get a lot of orders from our customers, so we are very cautious about making fresh procurement for adipic acid,” a downstream buyer said.

Major adipic acid producers in China are bringing down their offers to offload their inventory of the material before the 2013 draws to a close.

“We  have no choice but to lower prices because we also have to increase market share. The competition is too fierce,” a source from a major producer said.

“We are facing high production cost and the appreciation of Chinese currency. We could not break even, too difficult for us,” the producer said.

Meanwhile, supply of the material in China just increased with the restart of Liaoyang Petrochemical’s 140,000 tonne/year line early this month, after more than four months of shutdown.

Further downside to prices, however, may be limited by firm cost of feedstock benzene, most market players said.

Benzene prices in Asia remained at above $1,200/tonne FOB (free on board) Korea over the past few months, squeezing the margins of major adipic acid suppliers.

At midday, benzene stood at $1,240-1,264/tonne FOB Korea.

“Benzene is too high for us, so I think adipic acid prices have already touched the bottom. It is not good for both parties if we continue to drop prices,” a second Chinese producer said.

Adipic acid must be priced higher by at least $500/tonne than benzene for adipic acid producers to generate margins, according to industry sources.

If benzene prices move up further, adipic acid values could be pulled along but any gain would be capped by weak demand and growing supply.

China’s Zhejiang Shuyang Chemical Co will likely start up its 80,000 tonne/year adipic acid plant next month, after nearly six months of delay due to mechanical problems, a company source said.

“The outlook is too uncertain, especially the year end is coming. Everyone in the market will be very careful,” a trader said.

($1 = €0.74 / $1 = CNY6.09)

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