Market sentiment for H2 Aug MTBE bearish on falls in yuan prices

21 July 2014 08:58 Source:ICIS News

SINGAPORE (ICIS)--Market sentiment for second-half August for methyl tertiary butyl ether (MTBE) turned bearish on the downtrend in yuan-denominated prices and expected weakening demand for gasoline, market players said on Monday.

Yuan-denominated prices have been falling consistently since the week ended 11 July because of a new tax policy effective 1 August that weighed on blending sentiment, Chinese market players said.

Traders and end-users with excess MTBE stocks were seeking to liquidate their cargoes to avoid incurring future taxes when they produce gasoline by blending MTBE, they added. This resulted in high MTBE stocks in China’s domestic market, which weighed on prices, traders said.

ICIS data on 18 July showed that prices in Shandong fell by yuan (CNY) 50-100/tonne to CNY 8,150-8,200/tonne ex-tank ($1,312-1,320/tonne), while prices in south China fell by CNY150/tonne to CNY8,350-8,400/tonne ex-tank. Prices in east China fell by CNY50/tonne to CNY8,150-8,250/tonne ex-tank.

This led to bearish sentiment in market players in southeast Asia. If the downtrend persists and demand stays weak, some China-based producers may export their cargoes on an FOB basis, they said.

“The prices in China right now are still not workable for export, but traders are starting to look out of China for sales opportunities because of the overcapacity and poor blending margins there due to high gasoline inventories,” a Singapore-based trader said.

Furthermore, while gasoline demand for August continues to be strong, most market participants say that the mogas crack has reached its peak. It may start on a downtrend and this will reduce blending margins, in turn decreasing the incentive to use MTBE as a blendstock, blenders in northeast Asia said.

“The mogas crack could crash anytime, which means that gasoline demand is likely to fall back down in September,” a northeast Asia-based blender added.

Gasoline demand in southeast Asia for August remains strong, according to some market participants, because of ongoing turnarounds and production issues at some plants in the region. These have supported gasoline prices in the past few weeks, but when demand for gasoline in September weakens at the end of the driving season, prices may fall, traders added.

MTBE is typically used as an octane booster in the blending of gasoline.

($1 = CNY6.21)

By Trixie Yap