OUTLOOK ’15: China ethanolamines seen bleak on slow economy, demand

By Felicia Loo

SINGAPORE (ICIS)–Prices of ethanolamines in China are seen to be subdued in the coming year owing to receding demand and ample supply, as the country’s economy is seen to remain sluggish, market participants said.

As an indicator of weakening prices, feedstock ethylene oxide (EO) have seen prices falling since November and they are expected to continue the downtrend amid burgeoning supply of new EO capacities.

As much as 540,000 tonnes of new EO capacity came on stream in China in the past month, knocking off prices as global crude futures plunged to new lows and Brent crude even traded below $60/bbl.

EO prices in eastern China spiralled down during the week ended 17 December, extending further losses amid ample supply.

Prices fell by CNY500/tonne EXWH from the previous reporting week to CNY8,300/tonne EXWH during the week ended 17 December.

“There is a lot of EO supply. Demand for MEA [monoethanolamine], DEA [diethanolamine] and TEA [triethanolamine] on the other hand, is very weak. Buyers are not procuring because they expect prices to decline further. There is no point in buying at this stage,” said one trader.

This trend of buying resistance may last until January because the market participants are replying on existing inventories to meet the meagre downstream demand.

“Business is very poor. There are hardly any bookings. The outlook for next year is really dim,” said another market participant.

Compounding the situation, China will be adding 1.3m tonnes of EO capacity by the end of the first quarter next year, taking the country’s total EO capacity to 3.5m tonnes, according to industry sources.

The new capacity, stemming from plant expansions or newly built ones, will hail largely from the southern and eastern coastal areas, sources said.

Meanwhile, the local ethanolamines prices are tracking the downtrend in EO prices, which in turn are following in tandem with declines in upstream crude, naphtha and ethylene values.

Monoethanolamines prices in China were assessed as weaker at yuan (CNY) 8,500-9,000/tonne EXWH during the week ended 17 December, down compared with CNY9,800-10,300/tonne EXWH four weeks ago, ICIS data showed.

Prices of diethanolamines shrank to CNY9,000-9,500/tonne EXWH during the week ended 17 December, versus CNY10,400-11,100/tonne EXWH four weeks ago.

Over the same period, prices of triethanolamines slumped to CNY10,000-10,300/tonne EXWH. TEA prices were assessed at CNY11,400-11,500/tonne EXWH four weeks ago.

Ethanolamines can be used for applications such as agrochemical production, surfactants, personal care and construction. MEA is produced by reacting ethylene oxide (EO) with ammonia. The chemical reaction also produces DEA and TEA.

Shrouded in pessimism, the import prices of ethanolamines are seen weakening in tandem with the economy.

China’s MEA import prices fell to $1,100-1,380/tonne CIF (cost insurance & freight) China during the week ended 17 December, compared with $1,280-1,380/tonne CIF China four weeks ago.

DEA import prices into China were assessed as lower at $1,200/tonne CIF China over the same period versus $1,380/tonne CIF China four weeks back.

TEA import prices were lowered to $1,200-1,540/tonne CIF China during the week ended 17 December, compared with $1,350-1,545/tonne CIF China four weeks ago.

“There is room for prices to fall even further as they track upstream prices. The gap between ethylene and naphtha is still huge by around $500/tonne. Ethylene prices may fall further,” said one market participant.

Meanwhile, a sluggish Chinese economy signals lower demand as many end-users are sidelined amid falling prices.

The HSBC flash estimate of China’s manufacturing sector indicated a reading at 49.50 in December, down from 50.00 in the previous month. A reading below 50 points indicates a contraction in the sector.

However, the December Markit flash estimate of the manufacturing sector in Japan fared much better, increasing to 52.10 points, a tepid increase compared to November where the reading showed 52.00.

Similarly, the PMI reading for the eurozone in December showed gains with a reading at 50.80, up from 50.10 in the previous month.

The flash estimate is a preliminary reading, the full PMI reading for China’s manufacturing index will be published in January next year.

Until crude prices stabilize, market end-users will not be seeking cargoes in big quantities even before the Lunar New Year which will take place in February.

End-users will buy on a hand-to-mouth basis on the prospects of further price downside, the market participants said.

However, prices of ethanolamines in China may rebound when the buying needs re-emerge as stocks start to deplete and the end-users will be compelled to restock, other market participants said.

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