NE Asia ethylene gains as China buyers build up year-end stocks

SINGAPORE (ICIS)–Spot import prices of ethylene in northeast Asia are up for the first time in seven weeks, amid healthy Chinese demand ahead of the 2018 term discussions and due to higher downstream styrene monomer (SM) and monoethylene glycol (MEG) values.

Firmer upstream crude and naphtha values and the impending start-up of a non-integrated SM project in China added to the bullish undertone.

December-arrival spot ethylene parcels were booked at around $1,280-1,300/tonne CFR (cost and freight) NE (northeast) Asia earlier this week, higher compared with the assessed range of $1,250-1,265/tonne CFR NE Asia in the week ended 3 November.

A number of end-users in China are trying to bring forward a portion of their feedstock purchases to December-arrival basis from January due to the uncertainty in term supply and on expectations of a comparatively tighter market in January.

For such buyers, a higher year-end inventory would serve as a buffer against possible delays in the conclusion of 2018 term contracts for which discussions will likely begin in the second half of November or early December. They are bracing themselves for tough negotiations, given a planned reduction in term shipments from Japan, where as many as seven crackers will undergo maintenance next year.

Buyers are worried that some producers in Japan will start lowering exports from January onwards, in preparation for their cracker turnarounds that are concentrated in the March to second-quarter period. This could make it harder for them to procure spot tonnes for January delivery.

Term shipments from two South Korean producers will be lower than in 2017 as well due to cracker maintenance and increased captive consumption on the back of new derivative capacity.

The producers in Japan and South Korea have yet to finalise their term volumes. Some of them have not started talks, while others are in the early stages of discussions. Several producers said they are likely to seek higher premiums for their supply.

On the demand front, consumers in China will face increased competition for feedstock next year. Two standalone SM plants will create up to 228,000 tonnes/year of new ethylene demand.

Qingdao Soda Ash Industry’s 500,000 tonne/year unit in Qingdao is scheduled for trial operations in end-December and this has already led suppliers to eye higher spot prices for December-arrival supplies.

Meanwhile, MEG and SM prices in China tracked gains in crude oil futures. A producer of SM has put on hold plans to shut two of its units for maintenance following the stronger market. This has in turn boosted the end-user’s ethylene import requirements for December.

In the week ahead, Chinese buyers are likely to continue to build up their year-end stockpiles of ethylene although further increases in spot prices could temper demand.

Buying activity for January-arrival cargoes will hinge on the successful start-up of the Qingdao SM project at the end of the year and the outcome of the 2018 term discussions.

Focus article by Yeow Pei Lin

Picture: Qingdao port in China (Source: Sipa/REX/Shutterstock)