Asia BDO may extend falls on weak demand, China supply glut

Focus story by Judith Wang

SINGAPORE (ICIS)–Spot butanediol (BDO) prices in Asia are expected to head further south in the near term because of increasing supply in the key China market, industry sources said on Tuesday.

On 6 May,  import bulk BDO prices in the region fell to $1,800-1,820/tonne CFR (cost and freight) China, down by an average of $20/tonne from early April, according to ICIS data.

Market participants attributed the recent price decline to the supply glut in China that is dragging down BDO prices amid the weak demand.

Shaanxi Shaanhua Chemical is currently conducting trial runs at its new 100,000 tonne/year BDO plant, while Jianfeng Chemical is due to start up its 50,000 tonne/year plant in the coming months, market sources said.

“[There is ] too much supply in China, and local producers have been reducing prices to offload cargoes. But buyers were cautious, as they are waiting for prices to go down further,” a local trader said.

Domestic BDO prices in China fell to yuan (CNY) 12,500/tonne ($2,000/tonne) DEL (delivered) this week, down by 6% from early April, according to ICIS.

Prices of import cargoes are heading in the same direction as regional suppliers are being forced to cut offers to promote sales, market sources said.

Spot offers were heard at $1,820-1,830/tonne CFR China, against buying ideas at  $1,800/tonne CFR China or below. Hundreds of tonnes of cargoes were heard done at $1,800/tonne CFR China, market sources said.

Market supply is ample, but demand from downstream polybutylene terephthalate (PBT), gamma-butyrolactone (GBL) and polytetramethylene ether glycol (PTMEG) sectors remained sluggish amid China’s economic slowdown.

Activity in the country’s manufacturing sector showed contraction for a fourth consecutive month in April, according to investment bank HSBC, fuelling concerns that the world’s second-largest economy is still losing momentum.

HSBC/Markit April purchasing managers’ index (PMI) for China came in at 48.1, lower than a preliminary reading of 48.3 and remained below the 50 threshold, which indicates expansion.

“The demand in China is very slow amid the tight credit policy and cooling property sector,” an end-user said, adding that this leads to weaker consumption of chemical commodities.

BDO is used as a solvent and is also used in the manufacture of some types of plastics, elastic fibres and polyurethanes (PU).

“There is little possibility that BDO prices will rise sharply in 2014,” a separate buyer said.

($1 = CNY6.25)

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