INSIGHT: China amines prices face declines on weaker MEG, economy

28 February 2014 01:00 Source:ICIS News

By Felicia Loo

China amines seen subdued; no price boost from feedstock EOSINGAPORE (ICIS)--China's domestic ethanolamines prices are likely to face further downward pressure amid a deteriorating monoethylene glycol (MEG) market and a slowdown in the world's second-largest economy.

In the local Chinese market, the prices of monoethanolamines (MEA) were assessed during the week ended 26 February at yuan (CNY) 11,000-11,600/tonne ex-warehouse (EXWH) east China, down by CNY400/tonne EXWH at the high end from the week ended 19 February, according to ICIS.

On diethanolamines (DEA), local Chinese prices were assessed as stable at CNY11,500-12,400/tonne EXWH over the same period, the data showed. However, prices had fallen from CNY11,800-12,500/tonne EXWH four weeks ago.

Meanwhile, the prices of triethanolamines (TEA) tumbled by CNY300-500/tonne from the week ended 19 February to CNY12,000-12,500/tonne EXWH in the week ended 26 February, and they had weakened from CNY12,300-13,200/tonne EXWH four weeks ago, ICIS data indicated.

The overall shrinking prices of the homologues were in response to falling MEG prices - a major ethylene oxide (EO) derivative.

The prices of the EO feedstock are one of the most important indexes for end-users and traders to detect the price trend in China's ethanolamines.

"MEG prices are falling, so do the prices of ethanolamines," said one market participant in eastern China.

With the key EO downstream product, MEG, weakening, ethanolamines production in China is likely to increase, further straining the market at a time of weak consumption and underperforming downstream sectors.

Ethanolamines are one EO derivative, while ethylene glycol (EG) is the largest downstream product of EO, accounting for 72% of EO consumption. Other EO derivatives are ethoxylates, ethylene glycol ethers, polyols and polyethylene glycols.

Spot MEG prices fell $41-42/tonne in the week ended 21 February to $933-946/tonne CFR (cost and freight) CMP (China Main Port), down by about 7% from $1,005-1,011/tonne CFR CMP four weeks ago, the ICIS data showed.

The spot MEG prices have been undermined by a massive build-up of inventories and sluggish domestic demand following the Lunar New Year holidays in the first half of February.

MEG stocks along the eastern China coast hit a record high of 1.14m tonnes in the week ended 21 February, according to Chemease data. Market players expect the stocks to continue growing as end-users remain hesitant to pick up cargoes amid a generally bleak outlook on sales.

In the downstream polyester industry, plants in China continued to run at reduced capacity averaging 68% last week.

By contrast, EO prices remained unchanged in the week ended 26 February at CNY10,600/tonne EXWH, market participants said.

Meanwhile, the prospects for price recovery for ethanolamines do not look bright because of slow downstream demand and rising upstream ethylene values, they added.

"TEA prices, in particular, will face the biggest declines among the three homologues since the property sector is in decline in China," said one market participant.

He added that falling housing prices will signal a slowdown in construction against a backdrop of a shrinking Chinese economy.

In China, TEA is mainly used as a cement grinding aid, as an emulsifier and surfactant, to balance pH in cosmetics, and in formulations for ear drops.

DEA is used to make coconut diethanolamines as well as in the production of herbicides and in gas scrubbing, while MEA is largely used as the raw material for ethylene-amines, for scrubbing acidic gases from poisonous factory exhaust streams and also as an intermediate for surfactants and medications.

Disappointing economic data from China cast a bearish hue on the downstream petrochemical markets, as plastics demand is usually pegged on the performance of the wider economy.

HSBC's flash manufacturing purchasing managers' index (PMI) for China was at a seven-month low of 48.3 in February, down from its final reading of 49.5 in January.

A PMI reading above 50 indicates an expansion, while a reading below 50 denotes a contraction in manufacturing activities.

However, on the import front, the selling ideas for foreign ethanolamines were stubbornly high in view of a much more lucrative European market, whereby producers were keen to divert their supplies given higher realisation of profits, market participants said.

"Some sellers are not ready to reduce the prices," said one market player.

In China, the selling indications of southeast Asian drummed cargoes stood at $1,350/tonne CIF (cost, insurance freight) China for March shipment. They were equivalent to $1,380/tonne CIF China after normalising the prices to a zero antidumping duty (ADD) and a 6.5% import duty basis.

The offers for Middle Eastern MEA were at $1,300/tonne CIF China for bulk cargoes, or the equivalent of $1,450/tonne CIF China in drummed packaging.

Meanwhile, the selling ideas of southeast Asian DEA in drummed packaging stood at $1,380/tonne CIF China for March shipments. They were equivalent to $1,410/tonne CIF China after normalising the prices to a zero antidumping duty (ADD) and a 6.5% import duty basis.

The selling indications of Middle Eastern DEA in bulk packaging were at $1,480/tonne CIF China, or the equivalent of $1,550/tonne in drums.

On the TEA front, selling indications of southeast Asian drummed cargoes stood at $1,600/tonne CIF China for March shipment – or the equivalent to $1,640/tonne CIF China following the price normalisation to a zero ADD and a 6.5% import duty basis.

"It's tough for us to accept the Middle Eastern material because the offers are far too high," said one market participant.

The upstream ethylene spot prices in northeast Asia rebounded by $10/tonne at the low end during the week ended 21 February to $1,470-1,480/tonne CFR NE Asia, while the spot prices in southeast Asia rose by $20-30/tonne to $1,420-1,450/tonne CFR SE Asia over the same period.

In Europe, February MEA contract prices were assessed as stable at €1,405-1,455/tonne FD (free delivered) NWE (northwest Europe). DEA contract prices for the same month rose by €5/tonne to €1,155-1,205/tonne FD NEW, while TEA contract prices for February were stable at €1,460-1,530/tonne FD NWE.

European spot prices have been under upward pressure, at a time of significant tightness of supply in the market, with limited imports into Europe. DEA supply tightness has been strongest, with the North American market exerting strong demand for product.

Germany's BASF, one of Europe's leading producers of ethanolamines, announced substantial price increases across its ethanolamines portfolio. These include a €20/tonne increase to MEA and TEA, and a €50/tonne increase to DEA. The increases are to take effect immediately or as soon as contracts permit. A company source said BASF is seeing a high volume of enquiries, especially for DEA.

Russia's leading producer of ethanolamines Sintez OKA, has had production problems at its Dzerzhinsk plant. The plant, which has a total amines capacity of 45,000 tonnes/year, is on stream this week and operating at around 85% of normal capacity, a company source confirmed. Raw material EO supply is said to be much improved. However export volumes to Europe are still low, with this unlikely to change until the next round of quarterly contracts begin in April.

Additional reporting by Rhian O'Connor

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By Felicia Loo