Asia 2-EH in stalemate on poor downstream, higher offers

Focus story by Trixie Yap

SINGAPORE (ICIS)–Asia’s 2-ethylhexanol (2-EH) market is likely to remain in a stalemate in August as well because buyers and sellers are unable to settle amid weak demand while offers remains stable-to-firm, market sources said on Thursday.

The stand-off between buyers and sellers widened in the past two weeks because of the higher offers from some producers as a result of a higher feedstock propylene costs, market participants added.

Spot 2-EH prices were assessed at $1,420-1,460/tonne CFR (cost & freight) east Asia as of 11 July, ICIS data showed. Compared with a month ago, the high end rose by $15/tonne as a result of higher offers in the market.

Producers said they have not received an increase in buying enquiries because of the weak downstream demand from the plasticizers sector amid a seasonal demand lull that typically runs through June to end August.

Buyers were only engaging in restocking activities and were not keen to build up on high inventory levels, they said.

This was despite firmer yuan-denominated prices in the past week. ICIS data showed that on 11 July, domestic prices in eastern China were yuan (CNY) 200/tonne higher at CNY10,200-10,300/tonne ($1,640-$1,660/tonne) ex-tank, while prices in northern China were CNY100/tonne higher at CNY9,800-9,900/tonne ex-tank.

Domestic prices firmed up because producers of 2-EH wanted to pass on higher feedstock costs from propylene to buyers.

This rise in yuan-denominated prices, instead, pushed spot exporters in China to raise their offers for August shipments to $1,445/tonne FOB (free on board) China, $5/tonne higher from their offers for July shipments.

Taking into consideration freight costs, this could amount to around $1,475/tonne CFR east Asia and above, depending on the end destination.

One key producer in China said that it had already sold out of end-August cargoes because of the better netbacks in the domestic market and was not keen to lower its selling indications.

Separately, a key South Korea-based producer had also raised its offers to $1,500/tonne CFR east Asia and above, owing to higher feedstock costs and squeezed margins.

It added that it will be keeping its selling indications for now, but acknowledged that the wide buy-sell gap will either remain or widen. This was because plasticizer makers are unlikely to increase their buying indications for 2-EH feedstock because of poor downstream demand.

A second South Korea-based producer, however, said that it will be difficult for the company to raise offers by a large margin because of the weak buying sentiment. The producer said it is still unclear whether it will have August cargoes for sale because of contractual requirements.

A Japanese-based producer said it had not offered August shipments on the market yet, but was looking at selling indications above $1,450/tonne CFR E Asia, stable from offers for July. This was because it tried to increase its offers in July, but received lukewarm responses from buyers and therefore, decided to maintain its current offer levels.

Buyers, on the other hand, are resisting these stable-to-firm offers, citing poor downstream demand for both dioctyl phthalate (DOP) and dioctyl terephthalate (DOTP). These are the two key plasticizers that require 2-EH as a direct feedstock.

A key east Asia-based buyer said that it was not willing to accept offers at above $1,420/tonne on a CFR basis and was not keen to purchase more than its monthly spot requirements.

However, it said that the poor demand situation for plasticizers may improve after the end of seasonal lull that ends in August.

Potential plant start-ups in domestic China such as Luxi Chemical’s second unit are also weighing on market sentiment.

Key market participants said that this start-up is likely to raise the supply level in China’s market, which could lead to a downward pressure in yuan-denominated prices.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections