Asia EDC at 4-year highs on tight spot supply, changing trade flows

SINGAPORE (ICIS)–Ethylene dichloride (EDC) prices in Asia are at their highest in four years, and prices may remain supported into the first quarter of 2019 on continued tightness in spot supply.

A container ship at a port in Tokyo, Japan (Photo by Franck Robichon/EPA-EFE/REX/Shutterstock)

 – US exports less cargoes to Asia

 – Trade flows changing amid US-China trade war

 – Weak caustic soda weighs on EDC market

EDC’s average spot prices have more than doubled to $395/tonne CFR (cost & freight) NE (northeast) Asia in the week ended 7 December from $167.50/tonne CFR NE Asia in the week ended 5 January 2018, according to ICIS data.

The same case can be seen in southeast Asia, where average prices rose to $395/tonne CFR from $175/tonne CFR over the same period, the data showed.

The last time prices were higher was on 24 October 2014 for northeast Asia, and on 14 November 2014 for southeast Asia.

The uptrend in prices is due to scant spot availability amid lowered trade volumes from the US, which is a major exporter of EDC to Asia.

US’ overall export volumes for the material in the first three quarters of 2018 have fallen by 22.3% year on year, according to data from the US International Trade Commission (ITC).

To Asia, US export volumes this year declined compared with 2017 levels, with shipments to Japan down 69.3%, according to the data.

US producers are likely to have kept their EDC volumes for captive use into the production of key derivative, polyvinyl chloride (PVC).

Spot EDC prices have been on an uptrend since the start of the year due tight spot supply amid changing trade flows, which were aggravated in April due to an outage at Braskem’s chlor-alkali plant in Brazil.

Asian supply tightened further during the month as US-origin cargoes were diverted away to Brazil.

Market sentiment was further rattled when China, a key import market in the region, imposed a 25% tariff on US-origin EDC on 23 August in the US-China trade war.

With less spot supply heading into China this year, some integrated chlor-alkali producers in the country have been selling excess EDC to the domestic market amid lukewarm spot demand for downstream vinyl chloride monomer (VCM), according to market sources.

Some integrated chor-alkali producers may also be reluctant to lower EDC prices amid squeezed margins in chlorine’s co-product, caustic soda.

Caustic soda prices have hit a 28-month low in northeast Asia and will likely remain under pressure as producers face mounting inventory, while shipments to the key India market are still hampered by certification requirements.

Upcoming turnarounds at Middle Eastern EDC plants in March 2019 may also reduce spot volumes to Asia further, according to market sources.

On the other hand, a major northeast Asian chlor-alkali producer is returning to full production at the beginning of next year.

The company’s chlor-alkali production rate has been around 90% since mid-2018 due to technical issues, leading to less chlorine feedstock for EDC production, market sources said.

More chlorine feedstock may therefore be available for EDC production, although overall demand is still expected to outstrip supply as restocking activities are expected to continue in Asia.

Focus article by Jonathan Chou

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