2017 had found Asian suppliers banking on the open arbitrage window to Europe when Shell, Europe’s largest refinery in Pernis, the Netherlands, declared a string of force majeures (FM) across its production lines, including IPA and MEK, after suffering a fire and power outage on 29 July.
The arbitrage window to the US opened after Hurricane Harvey swept in in late August, which prompted a slew of force majeure declarations, including IPA plants.
As no north American plants make MEK, consumers depend totally on imported material.
With the ongoing situation in Europe, MEK went on allocation, even after the force majeures were lifted.
These factors led to a tightening in the Asian solvents market, as Asian suppliers diverted their cargoes to Europe and the US.
According to ICIS data, IPA peaked on 8 September, at $950-1,000/tonne CFR (cost and freight) SE (southeast) Asia, compared to the previous month which was at $870-890/tonne CFR SE Asia.
Additionally, Asia producers said that enquiries from the US had been flooding in as the hurricane caused ports, refineries and petrochemical plants to shut down or reduce operations, and companies to declare force majeure on products.
These price hikes were introduced after Asian supply was already tightened when cargoes were shipped to Europe after the Anglo-Dutch energy major’s fire.
IPA supply in Asia has since re-balanced after the restart of plants in the US and Europe and the arbitrage windows closed.
In the near term, IPA supply is expected to be stable-to-tight, with some Chinese plants shut or on reduced operating rates due to stricter environmental regulations.
Furthermore, several smaller Chinese plants that cater cargoes locally were heard shut amid higher production costs on the back of stronger upstream values.
“We are cashing in on the domestic market as prices are more lucrative than exporting,” said a Chinese supplier.
Another Chinese supplier said in the coming year, he would like to focus more on getting regular customers and fulfilling contract obligations rather than selling spot.
The majority of Asian plants, especially in China, will also start winding down in anticipation of the Chinese lunar new year in February.
These factors would in turn contribute to a stable-to-tight market.
Market players expect demand to be stronger in January after the holidays. Most of Asia would also start gearing up for the Chinese lunar new year as demand for downstream paints and coatings would grow.
Demand is also likely to pick up after the Chinese spring festival, and continue into summer.
IPA prices would also depend on upstream propylene and acetone values, so any fluctuations could have an impact.
MEK prices have been seeing modest increases since August as supply in Asia became tight after Asian suppliers took advantage of the open arbitrage windows to Europe and the US.
Spot availability continued to decrease in the following months, with prices spiking towards the end of November when only one supplier was heard still offering spot in the Asian market.
Prices in northeast (NE) Asia on 15 December were at $1,600-1,660/tonne CFR NE Asia according to ICIS data.
During the same time, prices in southeast Asia were at $1,650-1,700/tonne CFR SE Asia, with limited offers heard.
In India, offers were even more limited than the rest of Asia, with prices were around $1,630-1,700/tonne CFR India.
“I am willing to pay but no one is willing to sell,” lamented a southeast Asian buyer.
With limited spot cargoes available and lucrative Chinese domestic prices, most Chinese suppliers preferred to sell locally.
Furthermore, suppliers in Japan are catering only to regular customers and fulfilling contract obligations, with little to no spot available.
Spot availability will be tight next year as Japanese producers undergo biennial turnarounds consecutively.
“With the Japanese plants under maintenance, we can only rely on Chinese cargoes [next year],” a northeast Asian buyer was heard saying.
Fearing an ongoing shortage, buyers in northeast Asia have started stocking up on February cargoes.
A deal for a February cargo was heard at $1,690/tonne CFR NE Asia. Offers for February cargoes to the same region were heard around the range, too.
In light of the ongoing and expected tight supply situation, prices are likely to be at least stable-to-firm in the first quarter 2018.
Market players have also said that prices showed no signs of slowing down, lamenting that Chinese suppliers were bullish in their offers, adopting a “take it or leave it” attitude.
“With the Japanese [suppliers] going on turnarounds, the Chinese [suppliers] are monopolising the Asian market, offering [prices] as they please,” grumbled an Asian trader.
Outlook article by Yuanlin Koh