NE Asia EDC at 16-month high on tight supply, US-China trade war

17 August 2018 05:46 Source:ICIS News

SINGAPORE (ICIS)--Ethylene dichloride (EDC) prices in northeast Asia are at their highest in 16 months amid short spot supply and uncertainty caused by the US-China trade tensions.

 - US-origin cargoes being diverted away from Asia since early 2018

 - China’s tariffs on US-origin EDC to change trade flows

 - Prices supported by short supply of ethylene in Asia

Spot prices have more than doubled from 8 December 2017 to an average of $347.5/tonne CFR (cost & freight) NE (northeast) Asia in the week ended 10 August 2018, according to ICIS data.

The current price was last seen on 21 April 2017, ICIS data indicated.

Asia could see changing trade flows as China, a key import market in the region, will start imposing a 25% tariff on US-origin EDC on 23 August.

The US is a major supplier of EDC to China, which had a 28% share of its shipments of the material in 2017, according to data from the US’ International Trade Commission (ITC).

Spot EDC prices in Asia have been on a general upward trend this year, supported by tight spot supply as US-origin cargoes were diverted away from the region to Brazil, following an outage at Braskem’s chlor-alkali plant.

Roughly 95% of EDC is used in the manufacture of vinyl chloride monomer (VCM), nearly all of which goes into polyvinyl chloride (PVC). Most EDC plants are integrated with VCM production.

US producers of key derivative PVC have been operating at near-full capacity, according to data from the American Chemistry Council (ACC). There is thus little room to consume more EDC feedstock into PVC production in the US, said a market source.

Market participants expect US EDC cargoes to flow to other regions in Asia, as well as Europe when China's tariff takes effect.

The first US-origin spot transaction in several weeks took place late last week at $330/tonne FOB (free on board) US Gulf to Europe.

This adds up to around $390/tonne CFR NE Asia, after accounting for freight rates. Market participants find it unlikely that deals in Asia will be made at such high prices.

There was a selling indication at $375-380/tonne CFR NE Asia this week, but no deals were concluded.

“If the [EDC] price rises to $390-395/tonne CFR NE Asia, maybe some VCM makers will reduce operating rates [instead],” the seller said.

A trader said: “The [Asia] EDC market already has limited buyers. If prices get higher, spot enquiries will be further limited.”

EDC prices could also remain supported by high ethylene feedstock prices, which rose to an average of $1,402.50/tonne CFR NE Asia in the week ended 10 August 2018. This was the highest in 30 weeks amid shortened supply due to upcoming turnarounds in Asia.

Upcoming September turnarounds for downstream VCM plants in northeast Asia could also cool demand for EDC during that period.

In spite of this, the tight spot supply situation for EDC in Asia is expected to persist until October at least, said a market source.

Focus article by Jonathan Chou

Picture: Container port in Qingdao, Shandong Province, east China (Photographer: Yu Fangping/Pacific Press via ZUMA Wire/REX/Shutterstock)

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By Jonathan Chou