(recasts paragraph five for clarity)
Focus story by Trixie Yap
SINGAPORE (ICIS)--Spot n-butanol prices in northeast (NE) Asia may extend gains in the next few weeks of August on short import supply and higher demand, but this may not continue beyond mid-September, industry sources said Monday.
Producers are taking on a cautious stance, but are hoping that prices can continue to increase, after they rose by $30-40/tonne in the past two weeks. On 1 August, NBA prices were assessed at $1,200-1,300/tonne CFR (cost and freight) NE Asia, ICIS data showed.
Price gains in the previous two weeks resulted from lower operating rates at domestic China plants and higher prices on a yuan-denominated basis.
While market participants are unsure if the uptrend would continue in the long term, they do not expect prices to fall. This is because of high feedstock propylene costs, which has led to higher offers from China producers to minimise negative margins, according to market players.
Therefore, some China-based end-users were seeking to purchase import cargoes, as the price gap between import parity of Chinese domestic products and selling indications of spot import cargoes narrowed, market participants said.
Domestic NBA prices in east China and south China were at yuan (CNY) 9,500-9,550/tonne ex-tank and CNY9,700-9,800/tonne ex-tank, respectively, as of 1 August. They rose for three consecutive weeks from CNY8,900-9,000/tonne ex-tank and CNY9,000-9,100/tonne ex-tank on 11 July respectively.
The lack of cargo availability for August from Taiwan, Malaysia and Singapore, key sources of spot material, is widely expected to offset the ample inventory levels in China, which had resulted in largely stable-to-soft spot NE Asia prices since mid-December 2013.
Lower Chinese import volumes since March, lower spot availability from northeast and southeast Asia producers and recent gains in feedstock propylene prices contributed to the firmer market sentiment among Chinese importers.
However, several market participants do not expect the uptrend in NBA prices to last beyond September, even as downstream butyl acetate (butac) and butyl acrylate (butyl-A) sectors enter the traditional peak season.
“China is still in overcapacity and once all the plants are running back at 80-90% in September, it will offset the increase in demand from downstream sectors in the domestic market,” a southeast Asia-based producer said.
Largely stable-to-soft domestic Chinese prices and spot import prices since mid-December 2013 led several producers to adopt a cautious outlook, while targeting other spot markets such as India or southeast Asia.
“Buying momentum in China is unpredictable and judging from the previous occasions, price uptrends are not sustainable for more than two months,” two producers in southeast Asia said.
Moreover, domestic price gains in the recent weeks within China were not driven by a large increase in demand, but rather by perceptions of lower supply in the market, market sources said. This pushed some buyers into the spot import market seeking cargoes on concerns of potentially lower spot supply, they added.
Market participants in China are unsure if the uptrend in domestic NBA prices will continue after August, because of upcoming capacities and potentially higher operation rates at local plants.
“With new capacities to come online in August-September, it is difficult for prices to continue the momentum,” a south China-based butac producer said. “Moreover, when the market gets better, all other plants would either increase its operating rate or come back on stream,” it added.
Even though lower spot supply and higher import prices may support an NBA price rally in domestic China for August, higher local prices could drive some domestic producers to come back on line or ramp up their plants’ outputs to fill the gap in supply. This could subsequently put a stop to the rise in spot import NBA prices.
Jilin Petrochemical’s plant and Beijing Chemical’s No 4 unit were still shut as of 4 August, with the overall operation rates in China still at around 70%, according to market participants.
“The market is unlikely to soften in August because of the short supply, however, prices will start softening in early to mid-September,” a third southeast Asia-based producer said.
One northeast Asia-based producer, however, was still taking on a positive outlook because of several butyl-A plants that are due to start up in the third and fourth quarters of this year.
“Some downstream plants are still waiting to go on line, and this could result in larger demand for the long term,” it said.