Asia PA steady for three weeks; demand outlook grim

SINGAPORE (ICIS)–Asia’s phthalic anhydride (PA) import prices have been steady for some weeks now but the outlook on downstream demand is grim.

Spot trade liquidity has been “and could well be for some time out” thin, with most buyers visibly reluctant to stock up, a seller conceded.

Risks of second-wave infection, as well as of potentially deeper contraction in the global economy, continue to weigh on market confidence.

Even as many coronavirus-related restrictions have been eased and lifted across the region since late May, downstream production recovery has been uneven, in turn, hitting PA import trades.

In China, downstream production rebounded sharply since April, as indicated in the country’s Caixin manufacturing purchasing manager’s index (PMI) readings in the past three months.

In line with expansionary PMI readings for its manufacturing sector, China has bought actively in the last few months raw materials including PA.

ICIS data showed that China’s monthly PA import volumes soared to a record high of near 10,000 tonnes in May.

The strong import volume was accompanied by rising prices.

China’s PA import prices had gained 11% from the start of May to $615/tonne CFR (cost & freight) CMP (China Main Port) by mid-June, according to ICIS data.

But import discussions in the market have since stagnated, with the assessed prices staying in the $600-630/tonne range for three weeks in a row, ICIS data showed.

“Buyers seemed more withdrawn now, having bought sufficiently in the last few weeks. Enquiries for China-bound shipments in late July/August are drying up,” a regional producer acknowledged.

The demand picture in the imports-reliant Indian market is also not very encouraging, even if import prices into India did edge up in the last few weeks, in part tracking gains in China.

On 3 July, the average CIF (cost, insurance & freight) India PA prices closed at $635/tonne, 14% higher than at the start of May, ICIS data showed.

But like in China, prices in India have not moved for two weeks now, suggesting too that “things may have hit the ceiling there”, a trader mused.

For India, downstream production recovery is on even more shaky grounds, as coronavirus infection count have continued to rise relentlessly after countrywide lockdown orders were lifted in end May.

In some Indian states like Maharashtra, the situation has turned dire enough for state authorities to reinstate some localised lockdown measures.

For now, notwithstanding the faltering buying interest, PA sellers are still leveraging on stiff upstream costs to support existing offers.

Feedstock orthoxylene (OX) prices, for instance, have spiked 26% between May and June.

“I would have to transfer such costs or risk bleeding myself to death,” a PA seller said.

However, as OX prices seem to have plateaued recently, “and could turn south on lacklustre downstream off-take,” as a trader highlighted, it may be an uphill task for PA sellers to defend their existing offers for long if there is no discernible uptick in near-term PA demand.

Focus article by Ai Teng Lim

Photo: Yangshan Port in Shanghai, China. 20 March 2020 (Source: Shutterstock)

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