Price and market trends: Asia etac may extend gains on feedstock costs, supply constraints

22 November 2013 09:56 Source:ICIS Chemical Business

Limited export availability along with growth in domestic demand has lent support to the producers’ price hike proposals

Ethyl acetate (etac) prices in Asia may extend the recent rebound from a three-year low on the back of rising feedstock costs, market sources said on 13 November.

The prices of etac sold by China, the regional benchmark, have risen by 4.1% since early September to settle at an average of $895/tonne FOB China for the week ended 8 November, according to data compiled by ICIS. However, the gains have lagged behind those in the feedstock sector.

The yuan-denominated feedstock acetic acid prices in east China have climbed by 5.2% since early September to average at yuan (CNY) 3,130/tonne ex-tank, ICIS data showed. As of early November, acetic acid prices remained under upward pressure from the hefty gains in methanol prices further upstream.

With acetic acid prices still likely to follow methanol costs higher, escalating prices of co-feedstock ethanol are putting additional upward pressure on etac prices.

Ethanol prices in east China have gained 6.4% since early October to settle at an average of CNY6,225/tonne EXW for the week ended 8 November, according to Chemease, an ICIS service in China. Limited product availability had spurred the ethanol price hike.

The supply of ethanol in China is likely to stay tight in the near term, after ethanol producers slashed output in recent months to counter weak margins, market sources in China said.

Furthermore, Celanese was heard to have put its ethanol customers in China on reduced allocations in November as it undertakes maintenance at its 275,000 tonne/year plant in Nanjing, market sources in China said.

“Etac prices have increased, but our production costs have gone up even more,” said a Chinese etac producer.

“We have few options but to increase [etac] prices in tandem with the feedstock cost hike, given how thin our margins have been,” the same producer added.

Chinese etac makers’ margins have been compressed for most of the year by a persistent etac supply overhang, a result of the nation’s rapid capacity expansion in recent years. As feedstock costs began to rise, the worsening margin erosion spurred Chinese etac makers to implement successive price hike proposals from late September.

At the same time, limited etac export availability, along with a year-on-year growth in domestic demand, has lent support to the producers’ price hike proposals.

China’s etac export availability has been curtailed by output cuts at some plants, along with some producers’ preference to offer material only in the yuan-denominated domestic market.

Unfavourable economics prompted Chinese producer Jiangsu Lianhai Biological Technology to take its 300,000 tonne/year etac plant off line in late October. The producer said it plans to focus on selling material in the domestic market in the near term when it restarted the plant on 7 November.

Rizhao Jiahong Biological Technology further reduced the operating rate at its 100,000 tonne/year etac plant in Shandong province in November to about 30% of capacity, because the gains in feedstock costs outpaced that of etac.

Aside from the short-term output cuts, weak margins and the consequent drop in capacity utilisation rates in China so far in 2013 have crimped supply and further supported etac makers’ price hike proposals.

China is the world’s largest etac producer and net exporter. Shipments from Chinese producers to buyers abroad totalled 414,000 tonnes in 2012, led by sales to Japan, South Korea and Taiwan, the country’s Customs data showed.

However, capacity utilisation in China has averaged at about 48% of capacity until October 2013, with output in 2013 estimated to reach 1.51m tonnes out of a nameplate capacity of 3.37 million tonnes, according to data compiled by Chemease.

Domestic etac demand in China is estimated to grow to 1.14m tonnes in 2013, compared with 1.01m tonnes in 2012, Chemease data showed.

Chinese etac producers’ success in implementing week-on-week increases in the yuan-denominated domestic market since mid-September means that some have become increasingly reluctant to participate in the export trade, as the US dollar-denominated etac exports have consistently given producers a lower netback.

Domestic etac prices in east China have increased by 6.2% since mid-September to settle at an average of CNY6,025/tonne EXW (ex-works) for the week ended 8 November, Chemease data showed.

“Based on the current domestic prices, export parity should be at around $920/tonne FOB, but we are not seeing any buyer acceptance at this price level, so it makes more sense for us to offer product only to domestic buyers,” a separate Chinese etac producer said.

The producers’ progressively higher export offers have been gradually accepted by buyers in the key export markets, including Japan and southeast Asia.

However, some buyers remained sceptical that the etac price uptrend is sustainable.

“It is very difficult for buyers to accept the continuous rise in [etac] prices. Prices will have to come down sooner or later because the market is fundamentally in over supply,” said a Japanese importer.

“There has been a feedstock cost push [for etac] and, understandably, producers have to increase their prices. However, the fact remains that this is a well-supplied market,” said a southeast Asian importer.

Furthermore, competitive etac offers from India have prompted South Korean buyers to boost import volumes from India in 2013, which reduced their reliance on China as a source of etac supply.

Unlike etac of Chinese origin, which is subject to antidumping duties (ADD) and a 5.5% import duty, a free trade agreement between India and South Korea means that Indian etac is exempt from tariffs in South Korea.

“We have seen a substantial increase in [buying] inquiries from South Korea in recent weeks,” commented an Indian etac producer.

By Trisha Huang Allison Shi