China’s supply-led BG price rebound may be short-lived – sources

Focus story by Trisha Huang

MELBOURNE (ICIS)–The first significant rebound in spot butyl glycol (BG) prices into China since February may not be sustained beyond September, market sources said on Thursday.

Spot BG prices were assessed at an average of $1,425/tonne CFR (cost & freight) China for the week ended 30 July, up by 2.9% week on week. The prices rose for the first time since February, according to data compiled by ICIS.

The 21 July shutdown of South Korean producer Lotte Chemicals’ 50,000 tonne/year glycol ethers plant, along with news of mechanical issues at the unit in the lead up to the plant’s eventual shutdown, fuelled a substantial rebound in domestic BG prices in China and paved the way for higher-priced spot trades.

Domestic BG prices in east China settled at yuan (CNY) 11,300-11,400/tonne ($1,831-1,848/tonne) ex-tank in the week ended 30 July, following three consecutive weeks of increases. The prices were at CNY10,700-10,800/tonne ex-tank in the week ended 9 July, according to data collated by ICIS.

Diminished cargo availability from South Korea – until now a key source of spot material – is widely expected to ease the inventory build that had kept spot BG prices into China on a downtrend since the start of the year.

Lower Chinese import volumes in May and June, recent gains in feedstock n-butanol (NBA) prices, along with a domestic BG price hike proposed by producers in the US, contributed to the stronger sentiment among BG producers and Chinese importers.

However, a number of market participants shared the view that the BG price rebound may not last beyond September, as supply from South Korea is expected to be restored by September.

“There is no long–term shift in supply-demand dynamics,” said a BG producer.

Weak spot and domestic Chinese BG prices since late 2013 have sustained a cautious outlook among several market participants.

Domestic BG prices in east China were on a downtrend in the first three months of 2014, before fluctuating in a narrow range of CNY10,700-10,800/tonne ex-tank between early April and early July, according to data collated by ICIS.

“In light of the market situation in the first half of this year, we are not overly optimistic that the price uptrend will be sustained over the longer term,” said a Chinese BG importer.

The recent gains in domestic prices in China were driven not by any substantial improvement in demand, but by perceptions of tighter supply, according to the market sources.

“The question is, how much impact would [Lotte’s] plant shutdown have on prices into China, and for how long,” a separate BG producer said.

The market sources added that they were doubtful that the domestic BG price recovery will be sustained over the longer term, because existing BG inventories in east and south China remained ample while demand from the downstream coating sector has been static.

“It will take time for downstream buyers to get used to the higher BG prices,” said the same Chinese BG importer.

Furthermore, while perception of tighter spot supply and potentially higher import prices going forward may support a domestic BG price rally in China in the near term, higher local prices may prompt domestic BG producer Dynamic (Nanjing) Chemical Industry to ramp up its output and fill the supply gap, which may hinder a sustainable price recovery, the market sources added.

“August looks set to be a strong month because there is less supply, but the price uptrend should start to ease from mid-September,” a separate Chinese importer said.

Spot NBA prices in northeast Asia rose 1.2% in the three weeks ended 25 July, ICIS data showed.

US glycol ethers producers including Dow Chemical and Eastman Chemical have announced a 5 cents/lb BG price increase effective 1 August.

China imported 10,087 tonnes of BG in June 2014,  down by 23% from the same period a year ago, the country’s Customs data showed.

China’s May 2014 import volume, at 6,286 tonnes, was a 47% slump from the same month in 2013, according to the Customs data.

May and June also saw a surge in BG exports out of China, the Customs data showed.

($1 = CNY6.17)

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