Asia C3 gains may be capped in H2 by bearish downstream markets

15 June 2017 05:38 Source:ICIS News

Chimneys of Chinese factories 15 June

SINGAPORE (ICIS)--Spot propylene (C3) prices in Asia may not go on a sharp uptrend in the second half of 2017 amid a bearish outlook in downstream Chinese markets, but can expect some supply-side support.

Scheduled plant turnarounds in northeast Asia from May to August could limit supply and support prices in the near term, while downstream polypropylene (PP) futures market behaviour could also influence propylene's price direction, industry sources said.

Propylene demand from downstrean PP sector in the key China market is expected to weaken. PP supply could lengthen in the near term due to fewer plant turnarounds scheduled in the second half of the year.

Meanwhile, demand for another derivative propylene oxide (PO) in the country is also expected to soften, while another major downstream - acrylic acid (AA) - continues to grapple with oversupply.

China is a major importer of propylene in Asia. Its domestic market tends to dictate the movement in northeast Asian spot prices, although its monthly import volume has been shrinking since the start of the year.

Official data showed that the country imported 217,000 tonnes of propylene in April, down from 318,000 tonnes in January.

Elsewhere in northeast Asia, there were pockets of demand in Japan, South Korea and Taiwan.

Spot propylene prices have shed 7.3% from the start of the year to $830/tonne CFR (cost and freight) NE (northeast) Asia on 9 June, according to ICIS data.

The market started the year strong, with gains in both the north and southeast Asian prices.

Southeast Asian propylene prices rose above northeast Asian prices for the first time since April last year because good demand, and this condition lasted for about two months from 13 January.

Buyers had difficulties locating spot cargoes in southeast Asia since the start of the year, leading to higher bids and buying indications.

But demand in the key China market weakened in the second half of February due to weak performance in the downstream PP market, dragging down spot propylene prices in southeast Asia. By early March, NE Asian prices have flipped back into a premium over southeast Asian prices.

From the peak in mid-February to the second half of April, northeast Asian prices slumped 17.8%, dragged down by heavy losses in China’s domestic market, according to ICIS data.

Over the same period, southeast Asian propylene prices shed 29.6%, while domestic Chinese propylene prices in Shandong declined 18.8%.

Supply in China was generally considered ample. But demand weakened first half of April as Chinese authorities stepped up environmental inspection checks on downstream production units in the eastern Shandong region.

Meanwhile, the key PP downstream market continued to suffer from less-than-ideal sales and high inventory, resulting in mounting selling pressure among propylene producers in China.

The early part of May provided a much-needed respite as spot prices in domestic China and Asia rebounded slightly but weak demand across various domestic downstream markets continued to weigh on the market.

Focus article by Joson Ng

Asia propylene 15 June

Picture: Chimneys of factories in Tianjin, China (Source: VIEW CHINA PHOTO/REX/Shutterstock)

We are interested in your views on data providers for price assessments, indices, news and analysis for the petrochemicals markets. This is your chance to express your views on the data and information sources you use. It will take less than five minutes to do.

Click here to tell us what you think

By Joson Ng