Tight Asia supply impacts global chains

Chemical players in Europe are questioning what the impact of the Lunar New Year holiday will be on exports from Asia and, given the diminished inventories for a number of chemicals, whether the traditional increase of exports from the region will take place this year.

Tight supply and rising prices in Asia were key discussion points in 2016 across different chemical sectors. The impact on global trade flows led to upward pressure on prices in other regions, with the key driver being the Asian supply dynamic.

The Chinese environmental inspections monitoring the air pollution in the country also forced producers to reduce operating rates.

Price hikes because of supply have been seen in the melamine, butanediol (BDO), methyl methacrylate (MMA), polymethyl methacrylate (PMMA) titanium dioxide (TiO2) and propylene oxide (PO) markets, with many others also affected.

In November, the impact of this was particularly noticeable, with melamine buyers across the world scrambling for material.

Exports from China of melamine are estimated between 20,000-25,000 tonnes each month, with buyers turning to European producers to make up some of this shortfall.

It was the impact of the tightening of supply in China that led to first-quarter melamine prices increasing significantly, after a year of stability.

This trend has been mirrored in other chemical markets, with an increase in requests for European product from buyers in the Middle East, India, Turkey, South America and other areas where Chinese producers have a significant market share.

In the MMA and PMMA markets, supply started contracting in April 2016 and the the global supply balance has been getting tighter and tighter since then.

With MMA supply short in Asia, less monomer was polymerised, reducing inventories for PMMA producers.

The European PMMA market traditionally sees a noticeable increase in imports, after the Lunar New Year holidays.

Demand falls in Asia during the festivities and, after the period, Asian producers look to export markets to relieve heavy inventories.

The impact can be seen in trade statistics for months after the holiday, especially for polymer markets as plastics are easier to store.

Rising prices in Asia have resulted in Europe being the lowest-priced region for certain products which, combined with a weakened euro against the dollar, makes exporting to the region unattractive at this time.

European TiO2 buying and reselling sources said imports from Asia are no longer competitive due to the price uptrend in that region, unfavourable exchange rate and high freight costs.

Contrasting to the usual trend, European players expect the Lunar New Year to have a lessened impact on imports this year.

Players expect this will give Asian producers an opportunity to replenish inventories to a healthy level.

With smog also clearing in some regions in the north of China and lower demand because of the holidays, supply in Asia for many products could reach a healthier balance over the next few weeks.

This is already leading to talk of downward pressure on prices in Asia on some products like PO, which have been plagued by the impact of lower operating rates from producers because of the smog issues.

Supply is at a tighter level for much of the European markets impacted by the reduced Asian supply over the last year. Buyers in these markets will welcome any increase of imports from Asia, and any relief this brings.

However, at this stage, players will have to wait and see if the usual flow of material will take place, with inventories lower after a turbulent time in the Asian markets. ■

Additional reporting by Jane Massingham and Heidi Finch