China domestic ECH surges on tight demand-supply balance

SINGAPORE (ICIS)–China’s domestic prices for epichlorohydrin (ECH) have spiked post-holidays as existing supply constraints look set to persist for some time, but this may be at the peril of downstream demand.

A car assembly line in Liaoning province, China. (Source: Imagine China/Shutterstock)

Domestic ECH transactions this week were at well above yuan (CNY) 15,000/tonne DEL (delivered) east China, market sources said.

When the China market re-opened from the week-long National Day holiday on 8 October, domestic ECH prices averaged at around CNY14,250/tonne DEL east China, ICIS data showed.

The price spikes came riding on several factors, market players said.

On the supply front, constraints that have plagued China for much of the year are not about to fade away yet.

Two major domestic plants accounting for more than a third of the country’s nameplate capacity, remain out of action, and unlikely to start up anytime soon, market sources said.

“This squashed earlier talk that perhaps minimally the 130,000 tonne/year Jiangsu Haixing Chemical line may restart this month,” a trader said, adding that tightness in the domestic market would persist.

On the demand front, even though epoxy resins plants in China continue to grapple with low offtake from their own downstream markets, they were themselves very low on feedstock ECH inventories, and need to procure additional small parcels on the go, just to keep existing operations going.

This invariably means “having to fork out whatever ECH sellers may demand”, a producer lamented, as ECH availabilities are hard to come by.

ECH is mainly used to produce epoxy resins, which has heavy applications as a metal adhesives in key downstream industries like automobile and construction.

With feedstock ECH costs shooting up, downstream epoxy resins makers say they have no choice but to hike epoxy resins prices to recover costs.

In China, domestic ex-work prices for epoxy resins have already surpassed the CNY20,000/tonne mark this week, market sources said, compared to an average of CNY19,00/tonne on 8 October, based on data ICIS compiled.

But how responsive downstream markets may be to the epoxy resins hikes remains to be seen, market player said.

For one, China’s automotive market has continued to spiral down throughout the year, with August sales down nearly 7% year on year, data from China Association of Automobile Manufacturers (CAAM) showed.

Construction activities have also slowed down substantially this year in China due to economic growth concerns.

The likelihood of a near-term improvement is low too, a trader said, as the fourth quarter is seasonally quieter for these two industries.

Focus article by Ai Teng Lim

($1 = CNY7.07)