Lower feedstock, rising supply may stall China BG price rebound

Focus story by Trisha Huang

MELBOURNE (ICIS)–Falling raw material prices and rising supply may stall the first significant rebound in spot butyl glycol (BG) prices into China since February, market sources said on Thursday.

Spot BG prices accumulated gains of 6.5% in the four weeks ended 20 August to settle at an average of $1,475/tonne CFR (cost & freight) China, according to data compiled by ICIS. The market closed flat at $1,475/tonne CFR China in the week. BG prices began to rebound in late July, after slumping to an average of $1,385/tonne CFR China, the lowest point in 2014, ICIS data showed.

The BG price rebound was spurred by the 21 July shutdown of South Korean producer Lotte Chemical’s 50,000 tonne/year glycol ethers plant.

The unplanned plant shutdown, the consequent perception of tighter cargo availability in August and September, along with reduced import volumes in recent months, fuelled a rebound in the yuan-denominated domestic BG prices in China and paved the way for higher-priced spot trades.

However, the recent spot BG price uptrend may be stalled by restored spot supply amid heavy losses in the feedstock n-butanol (NBA) sector, several market sources said. Product availability is expected to lengthen after Lotte Chemical restarted its plant on 21 August after completing mechanical repairs.

“End-users’ buying activity has slowed because of the recent downturn in NBA and propylene prices; everyone is in a wait-and-see mode,” said a Chinese BG importer. 

“Most importers would not bet on a further [domestic] price increase by taking positions with high-priced spot cargoes for now,” the same BG importer added.

Spot NBA prices in northeast Asia lost around 3% in the space of one week to settle at an average of $1,230/tonne CFR northeast (NE) Asia for the week ended 22 August, ICIS data showed.

Further upstream, raw material propylene prices into China slumped by 5.8% in the four weeks ended 22 August, according to ICIS data.

“Downstream demand is quite weak,” a separate Chinese BG importer said.

Slowing buying activity from the downstream coating sector has already reversed the uptrend in domestic BG prices in China.

The prices in east China eased to yuan (CNY) 11,500-11,600/tonne ($1,873-1,889/tonne) ex-tank in the week, after rising to the 2014 peak of CNY11,600-11,700/tonne ex-tank in the week ended 20 August, according to data collated by ICIS.

Losses in the raw material NBA sector also prompted domestic BG producer Dynamic (Nanjing) Chemical Industry to reduce its asking price by CNY200/tonne to CNY11,600/tonne EXW (ex-works).

BG prices in south China dropped to CNY11,400-11,500/tonne ex-tank from CNY11,500-11,700/tonne ex-tank in the preceding two weeks, according to data collated by ICIS.

The weakening domestic BG prices, along with the absence of bullish factors on the horizon, prompted a number of importers to revise their previous expectation that local prices could breach CNY12,000/tonne ex-tank in east China.

Nevertheless, despite the downturn in NBA prices and easing end-user buying momentum, a number of Chinese importers shared the view that domestic BG prices are unlikely to decline much further in September.

This is because the increase in the cost of spot imports in August and September is expected to provide a floor for prices in the near term, since importers are unlikely to sell imported cargoes in the domestic market at below cost, the importers said.

“[Domestic BG] prices have gone up by almost CNY1,000/tonne in a the space of a few weeks, and it will take time for downstream buyers to become accustomed to the higher BG prices,” said a third Chinese BG importer.

Domestic BG prices in 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.

China’s BG imports in April, May, June and July all showed a year-on-year decline.

China imported 7,082 tonnes of BG in July 2014, down by 22% from the same period a year ago, according to the country’s customs data.

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

($1= CNY6.14)