News stories on the Yuan devaluation

Why it happened, what it means and what is in store for global petrochemicals

China's yuan depreciation weighs heavily on markets

07 January 2016 | Nurluqman Suratman

SINGAPORE (ICIS)--The Chinese yuan’s continued depreciation against the US dollar since August last year will weigh heavily on the domestic import market and regional trade, petrochemicals market sources said on Thursday.

However, the market players also said that the yuan’s weakness could potentially boost China’s overall exports eventually.

On Thursday, the central bank – the People’s Bank of China (PBoC) – set the official midpoint rate on the currency at 6.5646 yuan per dollar, the lowest since March 2011.

China sets a daily reference rate for the US dollar-yuan, with the limit on fluctuation set at 2%, up or down.

The yuan has been edging lower since 11 August last year when the PBoC allowed the currency to devalue by almost 2% to better reflect market forces.

It was the currency’s biggest one-day move since July 2005, when Beijing started its exchange rate reforms.

State-owned news agency Xinhua on Wednesday said that “short-term volatility of the yuan is understandable as ‘hot money’ makes an exit out of China, whose economy is heading for its slowest pace in a quarter century.

“However, there is no risk for the yuan to see substantial depreciation in the long term,” it added.

In the Chinese and regional petrochemical markets, trading activity has remained subdued this year on concerns about the yuan’s depreciation and the deceleration in the world’s largest economy.

“The depreciation of the yuan against the US dollar has dampened buying sentiment. I have been calling the customers this week in China but they are not keen to import, given the weakened yuan,” a trader in synthetic rubber said.

Chinese buyers in the synthetic rubber market are being very cautious given the depreciated yuan against the US dollar, which makes it more expensive for them to import synthetic rubber, which is transacted in US dollar, market sources said.

“We are staying out of the market for now because of the significant currency risk,” said a Chinese acetone importer.

A number of Chinese butyl glycol (BG) importers said that they would be seeking to buy fresh US dollar-denominated supplies at a substantial discount to the import parity prices because they need to allow for a potential, further fall in the yuan’s dollar exchange rate.

“The magnitude of the yuan’s depreciation has really exceeded our expectations and this situation is only likely to continue. That means that whatever US dollar price we pay, we will end up selling the product at a loss in the domestic market,” said a Chinese BG importer.

The currency weakness is likely to have a greater impact on deep-sea material.

The twin risks that the yuan-denominated domestic BG prices in China may decline further in the near term as downstream demand recedes in the lead up to the Lunar New Year holiday and that the yuan may depreciate further would be amplified by the substantially longer shipping time for deep-sea cargoes, the importers said.

“When we undertake price negotiations with suppliers nowadays we have to take into consideration a potential, further depreciation of the yuan against the dollar,” a different BG importer said.

Meanwhile, expectations of further depreciation by the Chinese yuan against the US dollar will likely weigh on ethanolamines imports.

The US dollar has strengthened following the Federal Reserve’s decision on 17 December to hike interest rates for the first time since 2006, betting on the relative strength of the US economic recovery.

Conversely, a weaker yuan is proving to be a boon for exporters, according to market players.

A Chinese ethyl acetate (etac) maker said an increasingly favourable exchange rate is boosting its competitiveness as it is able to offer greater discounts to buyers abroad.

“A weaker yuan is giving us greater flexibility in price negotiations with international buyers,” said the etac maker.

A source in China pointed out that previously Japanese MEK prices to northeast Asia were too competitive, making it difficult to penetrate into the market.

 “However, with the devaluation of yuan, in addition to the zero export tariff for Chinese MEK export according the China-Korea FTA, prices of Chinese cargoes might become more competitive eventually,” said the player.

With additional reporting by Helen Yan, Trisha Huang, Lee Hui Min and Felicia Loo

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China’s central bank weakens yuan by 0.5%, shares slump 7%

07 January 2016

SINGAPORE (ICIS)--The People’s Bank of China, China’s central bank, on Thursday further adjusted down the yuan's parity rate to the US dollar by 332 points to 6.5646, leaving yuan in a sharp 0.51% depreciation against the US currency.

China sets a daily reference rate for the US dollar-yuan, with the limit on fluctuation set at 2%, up or down.

The moved spooked investors sparking a 7% plunge in Chinese shares market, triggering an automatic halt to trading, and also impeded petrochemical buying by Chinese importers.

Comparing with 31 December, yuan has depreciated by 1.1% in the first four sessions of 2016.

Analysts said that yuan still faces weakening pressure against the dollar because of decelerating economy.

Meanwhile, China has entered the cycle of interests rates cut while the US has started the cycle of raising rates, which also leads to yuan’s depreciation, market sources said.

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Chinese toluene import interest to remain weak on weaker yuan

07 January 2016 | Trixie Yap

SINGAPORE (ICIS)--Import interest from key toluene buyers in China will continue to remain weak as a result of an unfavourable yuan exchange rate compared with the US dollar, market participants said on Thursday.

Sellers said that they were already seeing some signs of poorer import demand since two weeks ago and the lack of CFR (cost & freight) China enquiries starting 4 January further affirmed their suspicions that the exchange rate was making buyers think twice.

According to ICIS data, yuan-denominated prices were assessed at CNY4,900-4,950/tonne ex-tank in the Jiangsu region. Taking into consideration the current exchange rate, on a CFR China basis, this would be equivalent to $630-636/tonne.

This was a drop of more than $10/tonne, in comparison to two months ago, where the domestic prices would be equivalent to $643-650/tonne CFR China, traders said.

Several Chinese importers were also expecting the exchange rate to weaken even further and this added on to their cautious outlook on purchasing forward spot cargoes.

“There were talks that the exchange rate could go up to CNY6.8 to $1,” one east China-based trader said.

Therefore, it is further decreasing the desire of buyers to take in imported material for forward months such as February and March, he added.

In addition, there was also more lucrativeness in selling cargoes on a US-denominated basis, rather than on a yuan-denominated basis for traders who take into consideration both markets, several market players said.

“It made more sense for the larger market players to sell CFR China cargoes and cover their positions with forward cargoes on a yuan-denominated basis instead to gain on the weak exchange rate,” one south Chinese trader said.

It is likely that this situation of weak importing interest could continue until after the long holidays, since downstream plants are unlikely to see high operating rates during the festive season, Chinese market players said.

The Lunar New Year holiday in China falls on 7-13 February this year.

 “Most downstream derivative plants are likely to cut their operating rates or shut their plants completely until mid-February,” one Chinese end-user said. 

NEW YORK (ICIS)--China’s surprise devaluation of its yuan currency versus the US dollar will have broad implications for global commodity prices, including petrochemicals and polymers.

In the near term, the simultaneous strengthening of the US dollar will put even further pressure on commodity prices (denominated in US dollars) across the board which have already been in freefall.

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Asia petchem shares plunge as China halts trade amid yuan weakness

07 January 2016 | Nurluqman Suratman

SINGAPORE (ICIS)--Asian petrochemical shares plunged on Thursday, tracking the slump in regional bourses, following the suspension of China’s stocks after a further depreciation of the yuan against the US dollar.

The People’s Bank of China had earlier set the yuan midpoint at 6.5646 per US dollar, the biggest drop since the central bank’s devaluation started in August last year.

In China, the Shanghai Composite fell by 7.32% and the Shenzhen Composite fell by 8.35% before trading was halted.

Japan’s Nikkei 225 benchmark was down by 1.78%, South Korea’s KOSPI index fell by 0.96% and Singapore’s Straits Times Index was 1.97% lower.

Among other regional chemical majors, South Korea’s LG Chem was down by 1.33% while Japanese producer Mitsui Chemicals slumped by 4.10%.

Taiwan’s Formosa Petrochemical Corp fell by 2.88% and Singapore-listed palm oil major Wilmar was 3.17% lower.

In southeast Asia, Thailand’s PTT Global Chemical fell by 4.57% while Malaysian producer PETRONAS Chemicals Group slipped by 0.80%.

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China PE importers cut back on purchases on weaker yuan, demand

07 January 2016 | Angie Li

SINGAPORE (ICIS)--China’s polyethylene (PE) importers are cutting back on their purchases amid expectations of a further devaluation of the yuan and concerns about weak demand around the Lunar New Year holiday period, market sources said on Thursday.

On 7 January, the PE import cost rose by $30/tonne from the levels seen in early December last year based on the spot exchange rate of the yuan against US dollar, according to a trader. 

On Thursday, the central bank – the People’s Bank of China (PBoC) – set the official midpoint rate on the currency at 6.5646 yuan per dollar, the lowest since March 2011.

Domestic importers who purchase cargoes on the international market using the US dollar for contract settlements while selling in the domestic market in yuan are facing higher costs, according to market players.

Most importers have already cut their purchases of PE products that are settled using the US dollar while using currency futures as hedging tools in order to shrug off currency exchange rate risks, according to a trader. 

“We try our best to price our imported cargoes based on US dollar, especially those purchased under fixed pricing, but sales are not smooth at all because of limited demand from the domestic plants,” said a trader based in east China. 

Some industry sources expect that that PE import prices might be less than domestic prices in 2016.

A few traders told ICIS that they have agreed with their pre-sale buyers to peg the selling prices to the exchange rate on the arrival date of their imported cargoes in a mid to avoid losses caused by yuan depreciation. 

The market expects a weaker yuan against the US dollar in 2016 amid slower economic growth.

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Crude falls by more than $1/bbl on China, oversupply worries

07 January 2016 | Nurluqman Suratman

SINGAPORE (ICIS)--Crude oil prices fell by more than $1/bbl on Thursday on new concerns about China’s economy after a further devaluation of the yuan and continued worries about oversupply.

At 06:06 hours GMT, Brent crude oil futures for February fell by 97 cents/bbl to $33.28/bbl.

Earlier during the session on Thursday, the global benchmark fell to a low of $33.09/bbl, down by $1.14/bbl.

NYMEX WTI crude for March was 80 cents/bbl lower at $34.40/bbl after touching a session low of $34.05/bbl, down by $1.15/bbl.

On Thursday, the central bank – the People’s Bank of China (PBoC) – set the official midpoint rate on the currency at 6.5646 yuan per dollar, the lowest since March 2011.

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Oil, yuan sink Asian acetone despite lower regional output

07 January 2016 | Trisha Huang

MELBOURNE (ICIS)--Spot acetone prices into China, Asia’s biggest market, sank below $400/tonne at the start of the new year as lower oil prices and a weaker yuan overshadowed potential supply constraints, market sources said on Thursday.

Spot acetone deals were heard sealed at around $390/tonne CFR (cost & freight) China on a zero anti-dumping duty (ADD) basis, subject to an import duty of 5.5%, for northeast Asian cargoes shipping in January and February.

The prices are at a 14-year low. Acetone last traded lower in early March 2002, according to data compiled by ICIS.

A downward bias remains in the market even though phenol/acetone output across the region has been curtailed by a combination of producers’ output cuts, routine maintenance, mechanical issues and feedstock shortages.

The further selloff in crude oil futures and the ongoing depreciation of the Chinese yuan against the US dollar is battering Chinese importers’ buying sentiment, deepening the bearish undertone even as downstream demand is expected to slacken further in the lead up to the Lunar New Year holiday in China. The Lunar New Year begins on 8 February in 2016.

“We are staying out of the market for now because of the significant currency risk,” said a Chinese acetone importer.

In Japan, Mitsui Chemicals is running its phenol/acetone plant in Chiba at 60% capacity because of a mechanical fault. South Korean producer LG Chem in early October slashed its phenol/acetone output to 80% capacity from 100% prior.

In Taiwan, Chuang Chun Plastics is maintaining a reduced phenol/acetone plant operating rate in January, ahead of a month-long overhaul starting in February.

Fellow producer Taiwan Prosperity Chemical Corp (TPCC)’s phenol/acetone plant is in the midst of a routine turnaround. For several months prior to the maintenance shutdown, TPCC ran its plant at roughly 50% capacity to counter the soft market conditions.

In southeast Asia, Mitsui Phenols Singapore has been running its phenol/acetone plant at 60% capacity since early December, ahead of a month-long turnaround starting in February, because of curtailed raw material propylene supply from Shell.

Shell on 1 December declared a force majeure (FM) on the supply of base chemicals from its Pulau Bukom cracker, which can produce 450,000 tonnes/year of propylene.

Although market sources have said that the cracker may stay shut for up to six months, Shell has not commented on the duration of maintenance at the complex.

Separately, operations at a Singapore-based cumene plant are also heard to have been affected, according to market sources.

“The yuan is depreciating rapidly this week and people are expecting the yuan to weaken further against the US dollar,” a separate Chinese acetone importer said.

Additional reporting by Helen Han

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China PE, PP import prices may fall on weakened Yuan

14 August 2015 | Chow Bee Lin

SINGAPORE (ICIS)--China’ polyethylene (PE) and polypropylene (PP) import prices are expected to fall in the next two weeks because the sharply weakened Chinese yuan (CNY) has pushed import costs markedly higher, market sources said on Friday.

The import costs of PE and PP resins had on average risen by $40/tonne and $30/tonne respectively from last week due to the yuan devaluation, a trader in Shanghai said.

China’s demand for imported PE and PP resins would fall because the sharp depreciation of the Chinese yuan against the US dollar had reduced importers’ purchasing power for goods priced in US dollar, a source at a Middle East PE producer said.

Given the weaker import demand in China, some Asian PE producers might offer price discounts to clear the remaining export volumes for September loading, a source at a South Korean polyolefins producer said.

Many Asian PP producers were expected to offer price discounts in their efforts to move September cargoes because their production costs had fallen after the recent declines in global crude prices, a trader in Ningbo said.

In Thursday overnight trades, WTI and Brent crude settled at $42.23/bbl and $49.04/bbl, down $1.07 and 62 cents/bbl respectively.

However, China’s PE and PP import prices might be supported if the local PE and PP futures and spot markets remained firm, a Sinopec source in Guangdong said.

Demand for yuan-denominated PP and PE resins sold in the domestic market was expected to strengthen as a devalued Chinese currency had weakened import demand, the Sinopec source said.

The expected strengthening in demand for yuan-denominated resins in turn boosted investor sentiment on the local futures market, local traders said.

The LLDPE futures traded on the Dalian Commodity Exchange (DCE) had been on an uptrend since Monday, rising by 0.9-3.8% daily, DCE’s data showed.

The PP flat yarn futures traded on the DCE rose for three consecutive days from Monday, rising by 0.3-3.5% daily, before dipping by 0.4% on Thursday, according to DCE’s data.

Downstream plastics processors typically start restocking resins from the second half of August through September, but this has not started because the recent volatility in the global crude oil and currency markets had created increasing uncertainty in the plastics resin markets, said a trader in Guangdong.

While the Chinese government had devalued the yuan in an effort to stem the decline in the country’s falling exports, the end results might still not be able to improve the market’s sentiment, a plastics processor in Zhejiang province said.

Many plastics processors are still experiencing tighter credit conditions and the demand for Chinese exports has been weak in Europe and the US, hence a weaker Chinese yuan might not be enough to reinvigorate the country’s exports, the Zhejiang-based processor said.

The currencies of many countries in South America, Europe and Southeast Asia have also depreciated sharply against the US dollar recently, so a devalued Chinese yuan might not be able to boost Chinese exports after all, another trader in Ningbo added. 

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Asia SBR may extend falls on tumbling regional currencies

14 August 2015 | Helen yan

SINGAPORE (ICIS)--Styrene butadiene rubber (SBR) prices in Asia may continue their downtrend on waning demand, and with market uncertainties exacerbated by the surprise devaluation of the Chinese yuan this week, market sources said on Friday.

Non-oil grade SBR 1502 prices have shed 21% since late June to an average of $1,250/tonne CIF (cost, insurance and freight) China on 12 August, according to ICIS data.

China is a key market for SBR in Asia and is the world’s largest automotive market.

SBR is used in the production of tyres for the automotive industry.

“Chinese demand is falling and this is the main concern as we expect only marginal or even flat growth in the automotive sector,” a Chinese SBR producer said.

China’s central bank surprised the market on 11 August with a near-2% devaluation of the yuan against the US dollar, after which the Chinese currency continued to weaken.

“The devaluation of the Chinese yuan will not ignite demand. The main issue is not whether the Chinese yuan is depreciating, but fundamental demand,” a Chinese SBR producer said.

Demand for SBR in China has been weak amid falling sales and production of vehicles. The country’s vehicle market continued to contract in July, with sales down 7.1% year on year at 1.5m units and production at 1.52m units was lower by 11.8% from the previous corresponding period. Compared with June levels, July vehicle sales declined 16.6%, with production down 18.0%, according to industry data.

Meanwhile, the yuan devaluation sent other Asian currencies – including the South Korean won, Taiwan new dollar, Indonesian rupiah, Malaysian ringgit and Singapore dollar – tumbling against the US dollar during the week, further dampening sentiment in the Asian SBR market.

The resulting depreciation of other Asian currencies makes SBR imports, which are denominated in US dollars, more expensive for regional tyre makers and other customers, market sources said.

“Demand is really weak. There is no business,” a Malaysia-based rubber trader said, citing that the Malaysian ringgit has weakened to 4.00 against the US dollar.

A southeast Asian producer said: “There is a lot of uncertainty and customers are holding back their purchases as they expect prices to fall lower.”

Buyers have mostly retreated to the sidelines, market sources said.

“It is really tough now for SBR producers as it is a buyers’ market and buyers just wait and are not buying,” another SBR producer said.

In India, SBR prices have also been falling given the lull in demand during the monsoon season.

“The tyre makers in India are running at reduced rates as the export and domestic tyre markets are weak, so there may still be room for SBR prices to fall lower,” an India-based rubber distributor said.

Spot prices non-oil grade 1502 SBR tumbled to an average of $1,225/tonne CFR India on 12 August, ICIS data showed.

“Competition is very strong in the Indian market as the SBR producers compete to keep or build up their market share, with some suppliers offering significant discounts to get the business,” another Indian rubber trader said.

But expected restocking activities could provide support to SBR prices in the near term, some market players said.

"The buyers have to replenish their stocks and they are just waiting as they think that prices can still drop," a trader said.

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China’s imported ethanolomines prices to decline on yuan devaluation

14 August 2015 | Felicia Loo

SINGAPORE (ICIS)--China's imported prices of ethanolamines are seen tumbling amid hefty supply and poor demand, exacerbated by the depreciation of the Chinese yuan currency, market participants said on Thursday.

Prices of monethanolamines (MEA) on CIF (cost, insurance & freight) China basis were assessed as $870-1,000/tonne during the week ended 12 August, down by $30-150/tonne in reflection of the prevailing trades and market discussions, according to ICIS.

Over the same period, prices of diethanolamines (DEA) fell by $160/tonne at the high end to $850-990/tonne CIF China and triethanolamines (TEA) prices lost $60-150/tonne to $890-1,000/tonne CIF China, ICIS data showed.

“Demand is so sluggish and now with the yuan devaluation, the market is a disaster,” said one market participant.

China had de-valued the yuan a couple of days ago in an effort to support exports but also raised questions about the country’s economic growth.

The devaluation of the Chinese yuan currency will further dampen buying interest of imported material as it is now costlier to import the homologues at a time of poor demand and a slowing Chinese economy.

The US dollar-yuan central parity rate weakened by 1.6% on 12 August to 6.33, according to the China Foreign Exchange trading system.

Meanwhile, China’s purchasing managers’ index (PMI) for July slipped to 50.0, down from June’s 50.2, indicating a softening of manufacturing activities in the world’s second-biggest economy, according to data released by the China Federation of Logistics & Purchasing (CFLP) on 1 August.

The July PMI reading was at the threshold that separates expansion from contraction.

China’s production sub-index in July declined to 52.4 from 52.9 in June, according to the data.

The new orders index, meanwhile, slipped to 49.9 in July from 50.1 in the previous month, while the export index fell to 47.9 from 48.2 over the same period, the data showed.

The import orders index for July slipped to 47.8 from 48.0 in June.

China’s PMI is based on a survey of 3,000 manufacturers in the country.

On a micro basis, falling prices of ethylene as well as ethylene oxide cast a bearish hue on the market, triggering off speculation of further price reductions downstream.

Ethylene oxide (EO) prices in eastern China fell by CNY300/tonne EXWH (ex-warehouse) during the week ended 12 August to an almost a six-month low of CNY7,500/tonne EXWH.

At CNY7,500/tonne EXWH, EO prices were at their lowest level since 25 February 2015 when they were assessed at CNY7,000/tonne EXWH.

Ethylene spot prices in northeast Asia fell by $80-95/tonne during the week ended 7 August to $1,020-1,040/tonne CFR (cost & freight) NE Asia, extending losses because of ample supply and a bearish demand outlook on petrochemicals.

The spot ethylene prices in southeast Asia fell by $40-50/tonne to $1,000-1,010/tonne CFR SE Asia during the same week.

In the local Chinese market, ethanolamines transactions were assessed as stable-to-soft during the week ended 12 August, reflecting trades and market discussion levels.

As prices have declined over the past few weeks, some end-users have emerged to secure some material although the volume of transactions was limited.

DEA prices were assessed as unchanged at yuan (CNY) 7,200-8,000/tonne EXWH during the week ended 12 August.

Prices included deals for bulk DEA at CNY6,800/tonne EXWH levels.

On the local MEA market front, prices fell to CNY7,400-8,200/tonne EXWH over the same period.

Chinese domestic TEA price discussions declined to CNY7,800-8,000/tonne EXWH.

Some producers based in China have resorted to lowering runs or even halting production given ample inventory level in storage.

Taiwan’s Oriental Union Chemical Corp (OUCC) has lowered the production at its ethanolamines plants as a result of lower demand and ample supply, a company source said.

OUCC is running its 40,000 tonne/year ethanolamines unit in Kaohsiung, Taiwan, at 50% of capacity, he added.

This was down from 70% of capacity last month.

South Korea's Lotte Chemical has halted production at its 50,000 tonne/year ethanolamines plant at Jiaxin City in China since the second half of June, amid poor downstream demand and falling prices, a source close to the company said.

The plant was being operated at 60% of capacity before the shutdown, the source added.

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China's etac downtrend likely to continue on yuan devaluation

13 August 2015 | Trisha Huang

MELBOURNE (ICIS)--The downtrend in Chinese ethyl acetate (etac) prices continued this week as the yuan weakened for a third day since its surprise devaluation on 11 August, market participants said on Thursday.

Chinese etac producers offered cargoes at $760-770/tonne FOB (free on board) China in the week, down from $770-780/tonne FOB China the week prior.

Several Chinese etac makers said they are willing to consider a further price cut by $10/tonne if the yuan’s weakening trend continues.

The prices of etac offered by China, the world’s largest producer by capacity, have lost 1.6% since early July to settle at an average of $772.50/tonne FOB China on 7 August, a six-year low. The prices were last lower in November 2009, ICIS data showed.

The rout in crude oil futures, lower feedstock costs, soft regional demand and currency fluctuations have all contributed to the recent downtrend in Asian etac prices. 

China on Tuesday cut the yuan’s daily reference rate by a record 1.9%, following reports showing a sharp decline in the country’s exports and weaker-than-expected manufacturing growth.

China’s July 2015 exports plunged by 8.3% year on year in US dollar terms while the country’s producer price index was down by 5.4% from a year earlier. The concerns over the health of the economy are also reflected in the recent volatility of the Chinese stock market.

“If the yuan depreciates further, we would be willing to look at selling etac at $750/tonne [FOB China],” said a Chinese etac maker on Thursday.

A weaker currency is expected to help China’s exporters.

However, as the yuan devaluation ripples through global markets, it is having the opposite effect on demand, said a separate Chinese etac manufacturer.

“Our [overseas] customers know that we can now offer etac at a lower [dollar-denominated] price, so they are holding out for even lower prices,” said the second producer.

The pullback in crude oil futures and the consequent downturn in the prices of several substitutable petrochemical solvents have made etac a comparatively expensive solvent and contributed to the recent slowdown in regional demand.

The prices of toluene were at $610-630/tonne FOB Korea at noon time on 13 August while spot acetone prices sank to an average of $535/tonne CFR China for the week ended 7 August, ICIS data showed.

In the feedstock sector, raw material acetic acid prices have sagged by 9.4% since early July to close at an average o $362.50/tonne FOB China for the week ended 7 August, according to ICIS data.

Currency fluctuations are a further contributor to tepid southeast Asian demand for Chinese etac in recent months.

Even before China’s surprise move on Tuesday, the depreciation of currencies including the Thai baht and the Malaysian ringgit against the US dollar has increased the cost of importing US dollar-denominated etac from China.

China’s May 2015 etac export volumes slumped by 33% year on year to 53,639 tonnes, according to the most recent official data.

China is the world’s largest etac producer with 3.5 million tonne/year of capacity.

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Asia MEG falls $10-15/tonne on Chinese yuan depreciation

12 August 2015 | Eric Su

SINGAPORE (ICIS)--Spot import prices of monoethylene glycol (MEG) in Asia fell by $10-15/tonne on Wednesday as the Chinese yuan depreciated heavily for the second consecutive day, market sources said.

At the close of trade, prices were at $765-770/tonne CFR (cost and freight) CMP (China Main Port).

The midpoint spot value of the yuan fell to 6.3306 per US dollar on Wednesday from 6.2298, according to data from The People's Bank of China.

The depreciation has been dampening sentiment in Asia’s MEG market.

Weak crude oil futures overnight also weighed on the market, further dimming the outlook on regional MEG prices this month.

In late afternoon, discussion levels picked up slightly as domestic prices in the Chinese market were stable-to-firm, which can be attributed to restocking and short-covering activities, some market participants said.

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Shares of Asian petchem firms lower after yuan depreciation

12 August 2015 | Nurluqman Suratman

SINGAPORE (ICIS)--The shares of major petrochemical companies in Asia were mostly lower on Wednesday, tracking the losses seen in regional bourses, after China’s surprise devaluation of the yuan (CNY) raised concerns about the health of the world’s second largest economy.

The People’s Bank of China (PBoC) devalued the yuan by nearly 2% on Tuesday, its biggest single-day drop in 20 years, as part of its strategy to shift to a more market-based exchange rate.

A weaker yuan could threaten other Asian economies which compete with Chinese exports, and could force central banks in the region to devalue their currencies to stay competitive.

In Shanghai, shares of China’s largest oil company PetroChina fell by 1.18% while Sinopec Shanghai Petrochemical was 2.10% higher. The Shanghai Composite was 0.16% higher at 3,934.37.

Japan’s Mitsubishi Chemical was down by 2.18% in early trading while Mitsui Chemicals and JX Holdings were 0.22% and 1.47% lower, respectively. The Nikkei 225 fell by 1.19% to 20,474.82.

In South Korea, LG Chem was down by 4.95% and Lotte Chemical Corp fell by 1.29%. The KOSPI index was 1.40% lower.

Malaysian producer Petronas Chemicals Group (PCG) slipped by 10.17% while Thailand-based producer PTT Global Chemical was 1.24% lower.

The PBoC’s move to devalue the yuan followed news that China’s exports fell by 8.3% year on year in July.

China’s economy is expected to grow by less than 7% this year, the slowest rate since 1990, while its major stock markets have tumbled since June.

The yuan is linked to the US dollar’s value, which has risen sharply over the past year. The currency is fixed by allowing it to move by 2% above or below the midpoint for the value of the yuan against the US dollar set by the country daily.

The PBoC in its announcement on Tuesday said that it aims to improve the daily fixing mechanism by requiring market makers take into account the prior day’s closing prices, supply and demand situation, and global markets developments.

“A higher USD/CNY is effectively a depreciation in the currency and an easing of monetary conditions. The PBoC must see this as helpful to assist with China's current cyclical economic slowing,” said the Commonwealth Bank of Australia in a daily note on Wednesday.

“The adjustment corrects some of the PBoC’s earlier decisions to keep the daily fix very tight and not allow the market to move freely within the +/ 2.0% daily USD/CNY trading band according to economic market fundamentals,” it said.

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China’s soda ash prices flat, outlook stable

13 August 2015 | Helen Lee

SINGAPORE (ICIS)--China’s dense and light grade soda ash spot prices were flat during the week ended 12 August as discussions for August and September shipments were ongoing.  

On a FOB (free on board) China basis, the dense grade soda ash spot prices were steady at $210-220/tonne while the light grade soda ash spot prices were flat at $205-210/tonne, according to ICIS data.

Most China-based producers rolled over their offers despite subdued buyers’ response following recent reductions.

The impact on export prices from China’s devaluation of the yuan was thus limited, amid uncertainty on whether the devaluation could be sustained.

A Chinese soda ash producer indicated that buying impetus on the export front may be revived when prices stabilise as buyers continued to adopt a cautious approach on expectations of further price corrections.

Nevertheless, certain soda ash producers may face mounting inventory pressure, the producer added.

Meanwhile, China’s light grade soda ash prices are expected to remain pressured by ample supply from the Hou-process plants owing to strong prices for the by-product ammonium chloride (AC) in the domestic market, local market players added.

“The price direction would depend on the August to October downstream demand in China,” a Hebei-based producer said.

“Now demand is satisfactory; it’s just that the buying sentiment is hurt by prices from the Hou process soda ash producers,” the producer added.

Offers of the light grade soda ash were mainly at $210/tonne FOB China but confirmed deals were elusive.

There were discussions at lower levels of $200/tonne FOB China but some southeast Asia-based stockists dismissed these offers to be from smaller-scale producers which may find limited takers.

Looking ahead, the price of by-product AC were generally expected to enjoy support at stable-to-firmer levels amid buoyant demand from the fertilizer sector, according to local market players.

Soda ash is mainly used in the chemical industry, glass-manufacturing, metallurgy, paper-manufacturing, textile, dyeing, synthetic detergent, soap, washing powder, water treatment, as well as in the petrochemical industry.

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African PP prices drop in bearish markets

12 August 2015 | Matt Tudball

LONDON (ICIS)--Prices for spot polypropylene (PP) material cargoes in all African markets except South Africa dropped again this week on the back of lower bids and offers underpinned by bearish sentiment, sources said on Wednesday.

Sources in the Egyptian, north, east and west African markets said prices were clearly down again this week, and producers were willing to lower their offers or give discounts to buyers who were making firm bids.

“Prices in Egypt/Africa are better than other regions but also coming under pressure now,” a Middle Eastern producer said.

Buyers in turn were asking for even lower prices as crude fell below $50/bbl again on Wednesday, and Asian PP prices continued to slide.

“The downward trend is not encouraging customers to place orders unless you slash your prices,” a trader serving the Egyptian market said.

Demand in most regions was stable but the market is well supplied, giving most buyers the ability to shop around to get the best prices.

Sources also talked about the devaluation in the Chinese yuan announced on Wednesday. The lower currency will make Chinese exports cheaper, but will also make imports more expensive. With China likely to take less material, suppliers from other countries will have to find new markets to send excess product to, and that will include Africa.

However, a producer serving the South African market did not expect to see an immediate impact in that market, saying it is likely to be 2016 before any serious pressure on prices in that region is seen.

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Asian Chemical Connections

ICIS Consultant John Richardson's blog - The Asian Chemicals Connections looks at Asian and global commodity chemicals and polymer pricing trends, supply and demand, as well as macroeconomics, energy and environmental issues.

He has been actively covering China's Yuan devaluation and has written many blog entries around this market development.

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