OUTLOOK ’18: Asia ECH supply to remain tight in the near term

03 January 2018 03:49 Source:ICIS News

SINGAPORE (ICIS)--Tight supply of epichlorohydrin (ECH) in Asia is expected to continue this year as plants in China cut output to conform to environmental regulations in the country.

This is a stark contrast from 2017, when ECH sellers were seeking alternative markets in India, Europe and North America amid weak demand from the key China market.

A persistent buy-sell gap has impeded spot import demand in China for most of 2016 and 2017.

From January to early September 2017, ECH prices were hovering around $1,125-1,150/tonne CFR (cost and freight) CMP (China Main Ports).

Consequently, northeast Asian producers and suppliers based outside China were focused on selling cargoes in their own respective domestic markets.

Some of them were also selling cargoes further afield in the US, Europe and India. However, demand for spot cargoes in these markets was largely sporadic.

Demand for spot import cargoes into China picked up around September, when domestic prices rose steadily week on week amid tight supply.

Some ECH plants in China were shut due to environmental issues, while a key producer was running its plant at 50-60% capacity.

At the same time, demand for cargoes from buyers based in the US picked up as Hurricane Harvey disrupted ECH supply.

Consequently, some northeast Asian producers started increasing ECH offers into China as they rationalised that they could divert their cargoes to the US where they could achieve better netbacks.

During this time, ECH producers based in Korea and Japan also saw strong domestic demand in their respective markets. In addition to contractual volumes, these producers were receiving more spot enquiries from their home markets.

Meanwhile, there is no indication that the Chinese government will ease its environmental regulations.

Against this backdrop, domestic ECH offers and spot import offers have been steadily increasing since September.

Elsewhere, demand for ECH from downstream liquid epoxy resins (LER) also gained momentum in mid-2017 as several domestic LER plants were forced to shut due to China’s stricter environmental regulations.

At end-December, key northeast Asian producers based outside China indicated that they had limited spot volumes for 2018 amid contractual commitments.

In the near term, supply of ECH is expected to remain tight.

An anticipated pick-up in re-stocking activities is expected in January ahead of the Lunar New Year in mid-February 2018. Demand is expected to pick up ahead of the holiday.

Outlook article by Amy Tan

By Amy Tan