Asia bisphenol A (BPA) markets are in for what appear to be challenging times as supply flows going into 2019 very much hinge on demand in China.
Spot prices of BPA in key China markets slumped in the fourth quarter of 2018, undermined by dwindling downstream demand, particularly in polycarbonate and epoxy resin applications. The bearish market was exacerbated by a persistently weak Chinese yuan to the US dollar, depressed by the China-US trade war that made imports uneconomical.
On a CFR (cost & freight) China basis, spot prices tumbled to $1,250/tonne as of 21 December, marking a hefty 23% decline from levels the same period a year ago and lows not seen since October 2017, according to ICIS data.
Chinese domestic BPA prices nosedived through most of the fourth quarter and were at CNY 10,700/tonne EXWH (ex warehouse) as of 21 December. This was 20% down from the same period a year earlier.
The bearish sentiment might spill over into the first quarter of the new year, amid a slowdown just before the Chinese Lunar New Year festival that runs from 5 February 2019.
“There might be some [BPA] demand in January in China, but February will be quiet… March is uncertain although scheduled plant turnarounds should limit supply,” a northeast Asia-based market source said.
BPA/PHENOL GAP NARROWS
The spread between BPA and raw material phenol in China has also been squeezed from $557 levels at the start of the third quarter of 2018, to just around $160/tonne towards the end of the fourth quarter.
Struggling with a scenario of escalating raw material costs, several BPA producers were compelled to slash plant operating rates as part of efforts to combat depressed margins. On the flip side, recent expansions of downstream polycarbonate (PC) plant capacities within China just might be a game changer in spurring domestic demand for the raw material going forward.
China’s Luxi Chemical has added a new 65,000 tonne/year PC line to its plant located in Shandong.
Meanwhile, the firm’s third PC line, of a similar capacity, is undergoing trial runs.
By and large, “February [markets] should be quiet because of the Lunar New Year holiday”, a northeast Asia-based market source said.
Depending on the US-China trade war situation and crude oil’s price direction, spot BPA prices are not expected to see a significant rebound, at least in the early part of the year.
Crude oil futures prices weakened considerably in the fourth quarter of 2018 on the back of oversupply concerns and a global economic slowdown. Several key petrochemicals and commodities across Asia also took a beating.
CHINA PMI WEAKENS
The country’s manufacturing activity measured by the Caixin China Manufacturing Purchasing Managers’ Index (PMI) was 49.7 for December, indicating contraction. The PMI reading was at 50.2 in November.
A PMI reading of 50 or higher indicates an expansion, while a number below that denotes a contraction.
Against a backdrop of volatility in upstream related markets and energy sectors, market participants as a whole are keeping a close watch on benzene prices in China, which could temper sentiment in the months ahead.
Often used to measure the strength of BPA against benzene, the spread between both products have slumped to around $707.50/tonne as of 21 December, weaker than levels at $783.50/tonne during the same period in 2017.
China’s consumption of BPA was relatively consistent even as the country’s trade war with the US has dampened its economy.
The country imported 37,085 tonnes of BPA in October, 27% higher from the same month a year earlier, according to the latest Customs data.
Whether BPA and downstream PC sectors in China will rebound after the Lunar New Year festive period towards the end of the first quarter in 2019 is less than certain and not without its challenges.
The engineering plastics markets in China has buckled up for the bumpy ride ahead.
BPA is used in the production of PC resins.
PC is widely used in the auto industry and housing industry for the manufacturing of products such as appliances, home electronics and some build- ing materials.