Propylene at 3-year high, outlook different for east China and Shandong

Source: ICIS News


SINGAPORE (ICIS)--China’s spot propylene (C3) is on a three-year high on the back of low inventories and some unplanned shutdowns, with firming trend expected to continue in east China but a slight softening is expected in Shandong, ahead and after the Lunar New Year holiday.

China will be on holiday for a full week on 15-21 February for the Lunar New Year, which is celebrated in most parts of northeast and southeast Asia.

In the week ending 9 February, prices were assessed higher at an average of Chinese Yuan (CNY) 8625/tonne ex-tank Shandong and CNY 8425/tonne ex-tank east China.

Even prices of CFR (cost & freight) China were assessed higher at an average of $1,115/tonne. These price levels were last seen in January 2015, according to ICIS data.

A number of factors contributed to the firming of propylene prices in China over the last few weeks including shutdowns and healthy demand.

In east China, Oriental Energy-Zhangjiagang’s 600,000 tonnes/year propane dehydrogenation (PDH) plant shut accidently on 6 February because of mechanical issues.

Reports that maintenance may last longer than 20 days pushed prices of ex-tank east China up to new high.

“Spot prices may continue to stay at high level before and after the Lunar New Year as supply becomes extremely tight after Oriental Energy-Zhangjiagang shut suddenly,” a seller in east China said.

Domestic shortage in east China also gave an opportunity for importers to raise their offers.

A trader in east China said as prices in east China had gone up the supply was quite limited, offers of CFR China also rose to $1,145/tonne.

In Shandong section, Tianjin Bohai Chemical shut its PDH plant with capacity of 600,000 tonnes/year from 3 January to 5 February 2018 for planned maintenance, which reduced supply volume for a long time.

The market expects that Tianjin Bohai will not offer cargoes to Shandong before New Year holiday as it needs to keep inventory to support its own downstream demand.

Meanwhile, cargoes from northeast China met logistic difficulties due to bad weather which exacerbated the shortage of local supply in Shandong.

Propylene’s main downstream polypropylene (PP) powder inventories were low in January which ensured considerable demand and considerable margins.

Therefore, prices of ex-tank Shandong reached new high in the week ending 9 February, a situation which may not last long now un like in east China where prices are expected to remain firm. (I have spelled out the difference again to make it easy for readers) cool

“Spot prices may soften [in Shandong] in the last few days before the Lunar New Year as demand weakens gradually and supply is recovering,” a seller in Shandong province said.

In February, downstream polypropylene (PP) futures slumped continuously, which dragged down powder PP prices.

Comparing with climbing propylene prices, margins for powder PP were increasingly squeezed.

Therefore, buying sentiment had been largely soft since 8 February as many powder PP factories were shut or had reduced operation rate with the trend likely to continue even after the New Year holiday.

“My company want to keep empty inventory before Chinese New Year,” one supplier said.

Some factories in Shandong may reduce some ex-warehouse propylene prices for moving cargoes to keep low inventories.

Focus article by Dora Xue