China BG prices may extend gains on plant outage, lower imports

Focus story by Trisha Huang

MELBOURNE (ICIS)–Spot butyl glycol (BG) prices into China may extend recent gains after a fire on 12 June forced the shutdown of a domestic plant and spurred a rally in the domestic market, market sources said on Wednesday.

Spot BG prices into China were assessed up by nearly 11% week on week to settle at an average of $1,375/tonne CFR China on 17 June, as selling ideas surged in the wake of an unexpected shutdown of local producer Dynamic (Nanjing) Chemical Industry’s BG plant.

BG suppliers’ price ideas for July shipment advanced to $1,500-1,550/tonne CFR China, according to input from market participants. In comparison, spot deals for June shipment were done at $1,230-1,250/tonne CFR China.

Chinese producer Dynamic shut down its BG plant after a fire broke out at the unit on the evening of 12 June. The news triggered a surge in the yuan-denominated domestic BG offers in China. The plant has a combined BG and butyl di-glycol (BdG) capacity of 80,000 tonnes/year.

Immediately following the unexpected shutdown of Dynamic’s plant, several Chinese BG importers began to raise their offers on a daily basis, driving east China prices up by more than yuan (CNY) 2,000/tonne in less than a week.

BG prices in east China reached CNY12,000-12,500/tonne ex-tank on 17 June, from CNY9,800-9,900/tonne ex-tank on 10 June. Prior to the market rally, the east China market was in its fifth consecutive week of decline. 

Importers’ offers prevailed at CNY12,500-13,000/tonne ex-tank east China on 23-24 June.

“The market is likely to go up further,” said a Chinese BG importer.

Dynamic’s plant outage is expected to significantly impact cargo availability in China, because the said producer was running its plant at close to 100% capacity and supplying around 5,000 tonnes of BG a month to local customers.

Dynamic said in a 13 June statement that it is unable to make deliveries for existing orders because its plant is undergoing investigations. The producer added that it expects its BG plant to be off line for at least two months, in view of the extent of the damage caused by the fire.

At the same time, several Chinese BG importers have limited inventories on hand to meet the sudden supply shortfall because of their reduced import volumes so far in 2015.

A number of Chinese traders had curbed their spot BG imports amid a generally downbeat market outlook. At the same time, the deterioration of the Chinese market since late 2014 had curbed north American BG producers’ interest in selling cargoes to China throughout the first quarter of 2015. A number of US producers cut their supply volumes to China for January, February and March shipments because Chinese bids were unworkable relative to the producers’ production and logistics costs.

China imported a total of 36,394 tonnes of BG in the first four months of 2015, a 32.8% slump compared with the same period in 2014, when BG imports totalled 54,146 tonnes, according to the country’s latest available Customs data.

On the supply side, a month-long routine maintenance carried out by Malaysian producer PETRONAS Chemicals Group (PCG) at its Kerteh, Terengganu complex has also crimped spot BG cargo availability for several months, market participants said.

“The overall inventory level in China is not high,” a separate Chinese BG importer said.

Some market participants said that they expect Dynamic’s plant to stay off line for longer than the two-to-three months estimate, given that the incident was the second petrochemical plant fire in Nanjing in the space of a few months.

An explosion on 21 April led to the shutdown of Sinopec Yangzi Petrochemical’s ethylene oxide (EO) and ethylene glycol units in Nanjing. For this reason, the post-repair safety inspection of Dynamic’s plant by government authorities may be more thorough and take substantially longer, the market participants said.

However, slow demand from the downstream coating sector and restored Malaysian supply may temper the bullish momentum in the China BG market, some market participants added.

Supply from Malaysia’s PCG to Chinese importers is expected to resume from July, after the producer achieved stable operations at its 60,000 tonne/year BG unit, following an early-June restart.

The year-on-year drop in demand from China’s coating market sector may also limit the potential upside to BG prices, some market participants added.

“Demand from the coating segment is definitely much slower than in the previous years. As a trading company, we question the validity of purchasing spot material at $1,500/tonne [CFR China] or higher because we don’t see much upside to [domestic] BG prices, following the recent spike,” a third Chinese importer said. 

BG, derived from EO and n-butanol (NBA), is also known as ethylene glycol ethers (EGE).

China, which imported 134,299 tonnes of BG in 2014, is Asia’s largest buyer.

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