China petchem imports weaken; domestic prices spike on yuan slump

16 August 2018 07:29 Source:ICIS News

SINGAPORE (ICIS)--China’s appetite for petrochemical imports is waning on rising costs stemming from the continued depreciation of the Chinese yuan, while the consequent surge in domestic demand was fueling price spikes in the local markets.

- Chinese yuan lost more than 10% over four months to US dollar

- Importers turn to local markets for supply, boosting domestic prices

- Chinese buyers' absence exerts downward pressure on some petrochemical markets in Asia

Chinese petrochemical buyers are shying away from the import market as the yuan has slid almost steadily for four months, losing more than 10% of its value against the US dollar from 15 April, according to currency data provider XE.

The yuan’s continued slump has been an offshoot of the escalating trade war between the US and China – the world’s giant economies – with the downward pressure across emerging market currencies being exacerbated by the Turkish currency crisis.

A weak currency makes US dollar-denominated imports more expensive.

As China is a major importer of petrochemical products in Asia, its absence translates to some downward pressure on regional markets.

But firming Chinese domestic markets due to a sudden increase in demand as imports dwindle, also buoy up regional prices of some petrochemical products.

For benzene, domestic prices have been surging since July as “higher import costs curbed the import volumes”, said Jenny Yi, aromatics analyst at ICIS.

Prices in the local market have risen by about 16% since late June and are currently at above CNY7,200/tonne; while regional prices are at above $880/tonne FOB (free on board) Korea, up about 9% over the same period, according to ICIS data.

Indicating strong demand is the sharp decline in benzene stocks along eastern China, which fell to 181,000 tonnes.

“Inventories at ports have dropped for seven consecutive weeks, bringing a relief to the current oversupplied market,” Yi said.

Further inventory drawdowns are expected in the near term amid inadequate import supply of benzene.

“We expect the situation will continue in the third quarter, with import cargoes decreasing and new downstream capacities of styrene and aniline coming online,” Yi added.

For polyethylene (PE), few imports are expected in the near term owing to the sharp depreciation of the Chinese yuan, ICIS polyolefins analyst Amy Yu said.

“Domestic PE prices are likely to be pushed higher as imports decrease in the short term,” she said.

For butadiene (BD), China’s import demand is being deterred by availability of domestic material at cheaper prices as local supply was recently augmented by start-ups of new plants.

In the week ended 10 August, domestic BD prices in east China stood at CNY13,200-13,500/tonne DEL (delivered), while import prices were assessed at $1,730-1,770/tonne CFR (cost & freight) Asia, according to ICIS data.

For methanol, major end-users in China were preferring to purchase cargoes inland, in view of high import costs caused by the yuan’s weakness, as well as tight regional supply, ICIS methanol analyst Rachel Qian.

On 15 August, methanol import prices rose to $390/tonne CFR China; while domestic prices stood at CNY2,605/tonne in Inner Mongolia and at CNY3,235/tonne ex-tank in east China. Domestic prices have gone up 9% from the start of August, according to ICIS data.

“We expect China methanol import prices to keep rising in August and September and supply still to be tight following the turnarounds in southeast Asia,” Qian said.

“New expansions in the US and Middle East are not expected to release many cargoes into the spot market before the end of this year,” Qian added.

Methanol demand from the coal/methanol-to-olefins (C/MTO) sector in the country “is expected to be healthy during the next two to three months”, she said.

For polycarbonates (PC), Chinese buyers are shunning imports, further depressing regional prices as supply was outstripping demand.

Import prices of GP moulding grade PC fell to a six-month low of $3,075/tonne CIF (cost, insurance & freight) China on 15 August, according to ICIS data.

Chinese domestic purified terephthalic acid (PTA) prices are on a four year high at CNY7,766.5/tonne supported by strong demand as well as costlier feedstock paraxylene (PX), which has to be imported.

Focus article by Pearl Bantillo

Additional reporting by Clive Ong, Helen Yan, Melanie Wee and Sylvia Cai

($1 = CNY6.91)

Click here to view related stories and content on the US-China trade war landing page

By Pearl Bantillo