NE Asia ethylene prices higher on healthy Chinese demand

Focus article by Yeow Pei Lin

SINGAPORE (ICIS)–Spot ethylene import prices in northeast Asia are up for a second week as Chinese buyers are replenishing their stock on the back of strong downstream operations in the lead-up to the 2017 term contract discussions, according to players on Friday.

The price upside, however, could be limited by ample supply from southeast Asia, the Middle East and Europe, they said.

A spot deal was concluded at $1,040-1,050/tonne CFR (cost and freight) NE (northeast) Asia for a second-half December delivery cargo of 3,000-3,500 tonnes. The transacted price is up from the previous week’s assessed range of $960-980/tonne CFR NE Asia.

Several Chinese end-users are seeking cargoes for December arrival in anticipation of continued strong production next month. Buyers in downstream sectors ranging from ethylene oxide (EO) to styrene monomer (SM) and vinyls are maximising operations amid healthy margins owing to recent sharp drops in feedstock ethylene costs and strong derivative pricing.

Chinese buyers are also stockpiling for deliveries up to January prior to the 2017 term contract negotiations and the week-long Lunar New Year holidays, which will begin in end-January.

“We may look at reducing term offtakes if the offers are too high and buy more from the spot market,” a Chinese end-user said.

Many Chinese buyers have yet to be offered new term quantities as traders are largely still in the midst of negotiating FOB (free on board) contracts with the key producers in South Korea and Japan. The uncertainty over volumes and premiums for next year’s contracts are prompting Chinese importers to build up buffer stock.

The pre-Lunar New Year restocking activity, which typically happens in January, has also been brought forward due to the earlier-than-usual holiday period.

Downstream capacity expansions will lift consumption and imports as well. Abel Chemical started up a standalone 250,000 tonne/year SM plant in Jiangsu, China, last week.

Ethylene’s price gains, however, may be capped by plentiful supply from southeast Asia, the Middle East and Europe.

Supplies include shipment from Iran, where exports have recently received a boost from increased cracker run rates on the back of higher feedstock ethane supply. A producer offered via a tender a 5,000 tonne early December shipment.