Chinese BG buyers’ outlook weakens on rising inventories

Focus story by Trisha Huang

MELBOURNE (ICIS)–Chinese importers’ outlook for butyl glycol (BG) prices has weakened as inventories piled up and local prices declined in February, market sources said on Thursday.

Spot BG prices into China were assessed as down by 2% week on week to settle at an average of $1,430/tonne CFR (cost & freight) China for the week ended 5 March, according to data collated by ICIS. Spot BG prices have stayed below $1,500/tonne CFR China since October 2013, ICIS data showed.

Persistently high inventories in China, along with a slower-than-expected recovery in post-Lunar New Year holiday demand from the downstream coating sector, extended the downtrend in the yuan-denominated domestic BG prices in China.

The prices of imported BG in east China declined to yuan (CNY) 11,000-11,100/tonne ($1,794-1,811/tonne) ex-tank in the week ended 5 March. Prices were at CNY11,100-11,200/tonne ex-tank in late January, before the market closed for the festivities.

The unexpected depreciation of the yuan against the US dollar in late February, along with a sell-off in the broader petrochemical market, contributed to Chinese importers’ weak market outlook.

“[Post-holiday] demand has been much worse than we had anticipated. The yuan-depreciation has increased the cost of imported material and deepened importers’ trading losses,” said a Chinese BG importer.

In the upstream sector, heavy losses in the monoethylene glycol (MEG) segment is expected to drag down the prices of feedstock ethylene oxide (EO), a raw material for BG.

In view of the fragile supply-demand fundamentals, a US producer said that it has decided to reduce its supply volumes to China in the coming months. This measure should help ease the inventory build that has limited the upside to prices in recent months, the producer said.

“Selling BG is becoming very challenging in China. With the local selling prices falling suddenly in the past week, it is now impossible to conclude spot deals in the mid-$1,400s/tonne CFR China”, the producer added.

China, a net BG importer, bought 10,670 tonnes of BG in January 2014, a 35% slump from the same time a year ago, the country’s customs data showed.

However, this year’s Lunar New Year holiday which fell between end-January and early February stalled demand because many downstream plants were shut down for two to three weeks for the holiday.

Meanwhile, higher January import volumes, compared with the last two months of 2013, meant that inventories have continued to mount, market sources said.

China imported 7,508 tonnes of BG in November and 6,633 tonnes of BG in December last year, according to the customs data. 

“Market conditions are unlikely to improve before the end of April because of the further inventory build. I expect [domestic BG] prices to fall further in the near term,” a separate Chinese importer said.

Manufacturing activity in China slackened in February, with the official purchasing managers’ index (PMI) for the month falling to an eight-month low of 50.2 – slightly above the 50 threshold that indicates expansion.

Asian BG producers include KH Neochem, Lotte Chemical, PETRONAS Chemicals Group (PCG) and Dynamic (Nanjing) Chemical Industry.

US-based BG producers include Dow Chemical, Eastman Chemical and LyondellBasell.

($1 = CNY6.13)