China BDO slumps on high stocks, weak demand; plant run rates to stay low

SINGAPORE (ICIS)–China’s butanediol (BDO) prices have slumped in April on further declines in downstream demand and lingering high inventories.

Based on assessments on 21 April, spot BDO prices have dropped by yuan (CNY) 475/tonne ($67/tonne) or about 5.1% since the beginning of the month, ICIS data showed.

The downtrend in the BDO market in February to March was slower than in other products, as production was reduced to ease selling pressure after the extended Chinese Lunar New Year holiday.

By late March, BDO prices had declined by about CNY300/tonne or 3.1% from 23 January, the last trading day before the prolonged holiday.

At derivative polytetramethyleneether glycol (PTMEG) and polybutylene terephthalate (PBT) industries – which account for nearly 76% of total demand for BDO in 2019 – operating rates have declined further in April.

A huge number of spandex producers, downstream of PTMEG, have cut output due to reduced export orders for textiles amid the coronavirus pandemic.

A major PTMEG producer in Zhejiang has had to shut one production line for maintenance, company sources said.

Although 140D spandex supply is short because of surging demand for face masks, it fails to support the entire industry since the grade accounts for a small portion in the supply structure.

PTMEG orders will decline further in May because of weak demand for spandex in the near term, a buyer said.

This, together with expected shutdown at a major PTMEG plant, will further dent demand for BDO.

For downstream PBT industry, producers have cut run rates at their plants to around 30% of capacity to stem losses amid bearish demand, down from 45% in late March.

Any ramp-up in production as inventory levels ease will be slow due to weak demand from plastics and spinning sectors.

As for gamma-butyrolactone (GBL), the pick-up in demand is limited as GBL-based medical products are not directly connected in the fight against the novel coronavirus. Market players, nonetheless, are pinning their hopes on demand growth in the medical sector.

The main downstream of GBL is n-methyl-2-pyrrolidone (NMP), which is used in lithium battery. It can also be used to produce some pharmaceutical intermediates.

Domestic BDO producers are keeping their operating rates lower than 45% in the face of declining demand. The plants’ average run rate has declined to as low as 41.7% in early April.

Reduced production amid current demand disruption, however, could not effectively ease the market pressure from current high inventory among producers.

Furthermore, a gloomy export market has also exerted pressure on the domestic BDO market.

Export volumes to Europe, the major destination of China’s BDO products, declined in April as the coronavirus is sweeping the globe.

China’s exports to Europe and South Korea have been hampered by low-priced shipments from Saudi Arabia and the US in March, though demand was deemed as robust, most players said.

Focus article by Jady Ma

($1 = CNY7.08)

ICN

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