OUTLOOK ’18: Asia LAB prices set to rise on firmer feedstock costs

SINGAPORE (ICIS)–Asia/Middle East linear alkylbenzene (LAB) prices are likely to be stable-to-firm in 2018 on the back of higher feedstock crude and benzene costs, according to market players.

Global demand growth for crude oil futures is forecast at about 1.5m-1.6m bbl/day of additional consumption, including an expected 10% growth from China alone.

Crude futures rose in response to an upbeat US jobs report suggesting economic strength. Another report predicting that China will become the world’s largest oil importer in response to rising demand also provided support.

The threat of a Nigerian labour strike later in the month kept the market on edge, but a strong US dollar helped to cap the rallies.

Feedstock benzene in Asia is expected to mirror the performance of the US, with prices there continuing to set the pace for Asia.

Chinese buyers are expected to pick up cargoes in the domestic sector as local prices still trail import numbers.

As local Chinese prices move higher, import values are expected to rise as well, provided the key FOB (free on board) Korea market stays firm.

LAB suppliers in Asia and the Middle East expect prices to remain stable-to-firm in the near term on higher production costs.

Currently, there is a wide buy-sell gap between buyers and sellers, especially in southeast Asia, where customers are looking to buy LAB at November’s prices.

According to ICIS data on 20 December, the southeast Asian assessment was at $1,230-1,300/tonne CFR (cost and freight) SE (southeast) Asia. In November, the assessment was at $1,200-1,240/tonne CFR SE Asia.

However, market players are confident that buyers will eventually have to accept the price increases.

A need to replenish depleting stocks and strong downstream demand provides further support for the increase in LAB prices.

Most LAB buyers turn the product into linear alkylbenzene sulphonate (LAS), which is in turn is used in the making of biodegradable industrial and household detergents.

According to TATA Strategic Management Group, large surfactant capacities have been built up in Asia in anticipation of a growing demand.

One such surfactant, LAB, sees a huge demand in Asia with its growing economy.

South Asia, particularly India, is a key market for LAB and LAS. The country is seen as a generally under supplied market and imports are needed to supplement production by the four main Indian domestic producers.

Market sources said about 200,000 tonnes/year of imports are needed to meet India’s demand.

The introduction of anti-dumping duties on LAB imports from Qatar, Iran and China in April 2017 has had little impact on the Indian import market so far, according to market sources.

A reduction in the goods and service tax (GST) applicable on detergents lent a stronger outlook to LAB demand in the near-term, as the Indian government slashed GST rates from the highest 28% slab to 18%.

“Demand will pick up [in the near term] as people can buy more with lower GST taxes,” said an Indian supplier.

Improved acceptance of the new workflows around the recently-implemented GST structure in place since 1 July this year also upheld expectations of stronger detergent demand, supporting LAB off take.

LAB demand in the country has remained weak since June, with the absence of a seasonal uptick even after the end of the monsoon season, market sources said.

However, a need to replenish inventories coupled with stronger downstream demand is likely to lend support to firmer LAB discussions and prices in the near term, market players said.

Although India has not exported LAB in recent years, it does, however, continue to export LAS to Pakistan, Africa and southeast Asia.

China is also a key growth region but is believed to be sufficiently supplied. With recent stricter environmental regulations, many Chinese producers are concentrating on the more lucrative domestic market.

As a result, supply may become tighter in other Asian markets that depend on LAB imports.

In southeast Asia, LAB demand is largely supplied with Thai Oil and Japan’s Mitui & Co’s 100,000 tonnes/year Labix. With other major Asian producers also supplying to the region, demand is considered more or less covered.

Saudi Arabia’s state-owned Farabi Petrochemical Complex will open a new LAB plant in the western industrial city of Yanbu in 2020.

It will produce more than 120,000 tonne/year of LAB and 246,000 tonne/year of n-paraffins, as well as de-aromatised specialty oils, asphalt, sulfonates, mining chemicals, process oils and lubes.

Tufail Chemical Industries Ltd is planning to raise its capacity of LAS to 100,000 tonnes/year by the middle of next year from the current 60,000 tonnes/year, according to an earlier news on ICIS.

Outlook article by Yuanlin Koh