Asia adipic acid may extend gains as producers face margin squeeze

Source: ICIS News

2019/01/18

SINGAPORE (ICIS)--Asia’s adipic acid (ADA) market may extend gains as exporters from China – a major regional supplier – have raised prices to recoup margins amid low stocks.

Adipic acid is used in shoe soles (Source: View China Photo/REX/Shutterstock)

 - Chinese producers raise prices by $20-30/tonne

 - ADA spread over benzene narrows to $500/tonne

 - Slowing demand may cap price uptrend

In the week ended 16 January, prices for cargoes originating in China were assessed $20-30/tonne higher at $1,050-1,100/tonne CFR (cost & freight) NE (northeast) Asia; while prices for other cargoes stood at $1,320-1,400/tonne CFR NE Asia, according to ICIS data.

Spot prices for China-origin cargoes rose for the first time after shedding 25% since mid-September, while prices for cargoes of other origins declined 15% over the same period, the data showed.

Restocking by regional end-users ahead of the Lunar New Year holiday had whittled down the inventories of Chinese suppliers, which then decided to hike offers this week by $20-30/tonne.

The Lunar New Year, which is on 5 February, is celebrated in most parts of southeast and northeast Asia. China will be on holiday for a full week on 4-10 February.

A major Chinese producer which normally exports 3,000 tonnes of cargoes on a monthly basis, had exported double that volume by mid-January.

“We have no sales pressure now due to our low stocks, hence, we should focus [on] our profitability now,” said a source at the producer, which has hiked its offers to $1,100/tonne CFR NE Asia.

The recent price slump of ADA saw its spread over feedstock benzene narrowing in mid-January 2019 to $500/tonne – near the breakeven level of $400-500/tonne – from $1,000/tonne in mid-March 2018.

Other producers in northeast Asia maintained their offers for ADA at $1,350-1,400/tonne CFR NE Asia, in view of strong buying interest for Chinese cargoes.

Gains, however, are expected to be limited in the near term as overall demand will slow down in the coming weeks.

A number of downstream factories in China and Taiwan expected to shut production because of the upcoming Lunar New Year holiday.

Focus article by Judith Wang