Asia petrochemical trade slows; China on week-long holiday

Pearl Bantillo

30-Sep-2014

Focus story by Pearl Bantillo

China petrochemical trade slowing downSINGAPORE (ICIS)–Petrochemical trades in Asia have slowed down in recent weeks, and might come to a virtual standstill in early October, when the key Chinese market goes on a week-long holiday, industry sources said on Tuesday.

Depending on the chemical product, prices may either continue to fall or stabilise, they said, citing no demand support from China on 1-7 October – dubbed the country’s Golden Week as it celebrates its National Day.

China’s economic weakness is also weighing on overall sentiment in the regional petrochemical market, since the country is the biggest importer of such products in Asia.

Manufacturing activities in the world’s second biggest economy showed some stability in September, based on HSBC’s final purchasing managers’ index (PMI) reading for China for the month.

At 50.2, the investment bank’s final September PMI reading for China was the same as in August, but was a few points lower than its flash reading of 50.5 points.

In the butadiene (BD) and downstream synthetic markets, demand outlook is grim with likelihood of prices continuing to fall for the feedstock.

BD prices were assessed at an average of $1,455/tonne CFR (cost and freight) NE (northeast) Asia on 26 September, after staying at $1,525/tonne CFR NE Asia for three weeks, according to ICIS data.

“No more discussions on the butadiene market from China players – they have left for their holidays,” a trader said.

BD is a raw material used in synthetic rubbers like styrene butadiene rubber  (SBR), which is used in the manufacture of tyres for the automotive industry.

“China players are all now on holiday, no discussions this week on the market, local SBR prices will remain flat,” a downstream China synthetic rubber producer said.

Styrenics markets are also under pressure, as weak demand is being compounded by falling prices of feedstock styrene monomer (SM).

On 26 September, acrylonitrile-butadiene-styrene (ABS) prices were assessed at an average of $1,915/tonne CFR NE Asia, down by $10/tonne from the previous week and down by a cumulative $50/tonne from end-August, according to ICIS.

SM prices have shed 2.4% or $37.5/tonne from the start of the month to average $1,510/tonne CFR China on 26 September, the data showed. 

Supply of SM is expected to be balanced amid weak demand, with three plants expected to be restarted in early October while some are due for turnaround, market sources said.

In the xylenes market, prices have been on a downtrend on oversupply amid poor demand and a strengthening US dollar. Chinese players have decided to keep lean inventories ahead of the holiday week, market sources said.

In the upstream aromatics markets such as benzene and toluene, prices  have also weakened from the start of the month.

At midday, spot benzene prices stood at $1,185-1,198/tonne FOB (free on board) Korea, while toluene prices were at $1,070-1,075/tonne FOB Korea, down by about 7-8% from the start of September, according to ICIS data.

In the polymers markets, petrochemical markets in south Asia are expecting prices to come under strong downward pressure as China’s week-long holiday coincides with a Muslim festival of Eid-ul-Adha, which meant that the Middle East markets will also be closed.

“With both markets closed, prices will come under serious downward pressure,” a Mumbai-based trader said.

Polymer buyers often look to China for price direction and to the Middle East for spot material.

Eid ul Adha, also called the Feast of Sacrifice, marks the end of the Haj, the annual pilgrimage of Muslims to Mecca in Saudi Arabia.

The holiday is expected to be celebrated on October 3 or 4 in most Middle Eastern countries.

In the polyethylene terephthalate (PET) chips market, discussions between Chinese producers and customers will likely proceed, but actual deals are expected after the holidays.

Some market players expect PET prices to remain stable in the absence of clear price direction from feedstocks purified terephthalic acid (PTA) and monoethylene glycol (MEG).

Meanwhile, domestic polybutylene terephthalate (PBT) facilities in China are running at an average rate of 40% on Tuesday amid stable suppy-demand conditions ahead of the holiday, as most players are out of the market.

Trading activity in the PBT market is expected to be largely muted during the week-long holiday.

In the domestic propylene oxide (PO) market in China, a few local suppliers are keen to offload stocks at lower prices ahead of the holidays, market  participants said. The price decline was measured as other local producers were unwilling to reduce offers in the absence of stock pressure, they said.

Asia’s base oils market may further see price declines, particularly for Group II grades, given ample regional supply amid subdued buying interest in China, industry sources said.

Most Chinese base oils importers were heard to have adopted a wait-and-see stance, cautious about building up inventories amid expectations of further price fall.

“The Group I market seems comparatively more stable than Group II, as supply is less ample and Group I refiners are also not actively offering at significantly-lowered prices,” a China-based refiner said in Mandarin.

“However, the Group II market is not as optimistic. From experience, I believe there is still room for Group II prices to decline going forward until the fourth quarter,” the refiner said.

Towards the end of the year, Asia is likely to get a deluge of offers from northeastern producers, as well as from the US , the Chinese refiner said.

“The market is likely to see more Group II spot material then, which does not bode well for prices,”  the refiner added.

Additional reporting by Muhamad Fadhil, Hazel Goh, Helen Yan, Jasmine Khoo, Clive Ong, Hazel Kumari, Ho Pui Wing and Nurluqman Suratman

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

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