By Matthew Chong
SINGAPORE (ICIS)--Asia’s liquid epoxy resins (LER) spot prices are expected to remain largely stable in the first half of 2014 and may trend upwards from the second half onwards on the back of improving downstream demand, according to industry players.
Asian iso-tank LER average prices were largely stable at $2,525-2,600/tonne (€1,869-1,924/tonne) FOB (free on board) northeast (NE) Asia in the second half of 2013, with prices hovering at the low end of the price range towards the year-end amid a lull demand period.
Furthermore, US and European suppliers lowered their domestic prices drastically towards the end of 2013 to match Asian prices, stifling Asian imports.
Asian LER prices were believed to have bottomed out in November 2013 as most producers have raised their offers for January shipment cargoes, in tandem with firm feedstock bisphenol A (BPA) and China domestic epichlorohydrin (ECH) prices in recent weeks.
However, market participants expect prices to be relatively stable in the first half of 2014, adding that any price gains are likely to be capped as there are no signs of significant demand pick-up in the near-to-mid term.
Although the outlook for the US economy is rosier based on higher-than-expected GDP growth rate of 4.1% in the third quarter of 2013 over the previous quarter, LER price gains in the US and Europe would most likely be limited as the arbitrage window for Asian imports into the region would open once again if Western suppliers were to raise their prices.
US sellers were able to match Asian offers by reducing drummed LER spot prices to $3,000/tonne DEL (delivered) North America, which represents a 9% dip from its 2013 peak at $3,307/tonne DEL North America achieved in May, according to ICIS data.
Prices have been stable since end-November 2013 and are believed to have reached a bottom, tracking Asian prices, which are gaining traction due to rising feedstock costs in Asia.
Drummed parcels are typically priced $50-100/tonne higher than iso-tank cargoes.
Gradual demand recovery in Asia is expected in the second half of 2014, mainly due to an improved outlook for the downstream paint coatings sector – the major application of epoxy resins.
“New shipbuilding orders were received in Japan in 2013 but it takes around one year for actual demand to flow down to marine coatings,” a Japanese trader said.
A pick-up in shipbuilding activity has been observed in Japan, as well as South Korea and China.
This was largely due to new orders for liquefied natural gas (LNG) tankers, particularly in Japan and South Korea, as a result of the rapid growth in demand for LNG as an alternative source of energy to nuclear energy, market sources said.
The construction sector, another application of epoxy resins, has been in the doldrums for much of 2013 and most market participants think that it would be largely the same in 2014 due to the lacklustre economic climate.
However, bright spots can be seen in some countries such as Japan where construction is expected to recover.
“The building of new sports facilities and the revamping of the Tokyo city centre in preparation for the 2020 Olympics bodes well for the construction sector,” the same Japanese trader said.
Demand from other epoxy resins applications such as coatings for container tanks, automobiles and the electronics sector were less optimistic.
“One of my customers told me that sales of containers [in China] have fallen by 20-30% this year ,” a Chinese producer said.
However, while demand is expected to grow in the second half of 2014, supply of epoxy resins is expected to be little changed in the year ahead compared with 2013 as marginal growth in new capacity would be offset by shutdowns and consolidations of smaller and less efficient plants, especially in China.
Furthermore, the average operating rate of major producers in northeast Asia was 70-80% in 2013, according to market sources. The fairly high run rate meant that there is not much room for supply in the year ahead to increase from the previous year.
“The Chinese government is cracking down hard on plants that do not meet environmental standards and this would force small [epoxy resins] players out of the market,” a China-based Taiwanese producer said.
Recent start-ups include Kukdo Chemical (Kunshan)’s new 60,000 tonne/year LER facility in Kunshan, China which came on line in November 2013; and Chang Chun Chemical’s 50,000 tonne/year facility in Panjin, northeast China that was started up in September 2013, market sources said.
The output is understood to be meant for sales in the Chinese domestic market only.
Meanwhile, two new epoxy resins plants are due to be started up in 2014 by South Korea’s Kumho Chemicals and China’s Sanmu Group.
Kumho has plans for an additional 60,000 tonne/year facility in the second half of 2014 while Sanmu may delay the start-up of its new 70,000 tonne/year plant in Jiangmen, south China, originally scheduled to go into production in April/May 2014, a company source said.
With demand expected to outstrip supply, epoxy resins prices are likely to trend upwards in the second half of 2014.
($1 = €0.74 / $1 = CNY6.05)