Asia polyols prices coming off on weak demand and upstream PO losses

Ai Teng Lim

14-Nov-2018

SINGAPORE (ICIS)–Asian prices of polyether polyols are falling in the domestic yuan-denominated market in China, and in the US dollar-denominated import market in southeast Asia, under dual pressure of tepid demand and weak upstream propylene oxide (PO) values.

This week, domestic yuan-denominated prices for flexible foam slabstock polyols in China are teethering gingerly at the yuan (CNY) 12,000/tonne DEL (delivered) east China mark.

This is a far cry from end October, when flexible foam slabstock polyols cargoes still fetched CNY 13,000/tonne and above on DEL east China basis, according to ICIS data.

US dollar-denominated delivered China prices for slabstock, which typically tracks movements of yuan prices, also fell in line to an average of $1,675/tonne on 7 November, and look set to dip further this week, market participants said.

“Demand is simply too weak,” a Chinese polyols maker said, adding that “even at lower prices, fresh orders were still far and few in between”.

Polyols off take has lapsed for some time in China, as many downstream foam makers held back bulk purchases until they get more clarity on the ongoing US-China trade spats, which may impact their own export markets.

Polyols is mixed with toluene di-isocyanate (TDI) to produce polyurethane foam, which goes into finished products like bedding and mattresses.

But recent losses in upstream PO market is a silver lining for Chinese polyols makers, as production costs are now lower, giving them a freer hand to price down for export sales.

Chinese polyols makers see the latter as an avenue to boost sales and move some cargoes, amidst sluggish off take in the domestic market.

Based on ICIS data, PO prices in China had slumped badly in the last month, losing accumulatively nearly 12% in the period to close at barely CNY 11,750/tonne DEL east China on 9 November.

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US dollar-denominated offers of China-origin slabstock polyols had dropped correspondingly, and were heard at below $1,700/tonne CFR (cost-and-freight) southeast Asia this week, at least $100/tonne lower than what similar cargoes had been indicated at in the last two months.

But with more China-origin cargoes hitting the export market, at a time when demand in key regional outlets like southeast Asia is not structurally robust either, market participants say this will invariably weigh down CFR southeast Asian prices.

Unlike in previous years when polyols demand typically increases in the third and fourth quarter on a seasonal factor, market participants said that such anticipated demand had failed to materialise this year.

In fact, CFR southeast Asian prices declined in recent weeks, losing more than 6% between October and when trade began in November, according to ICIS data.

This contrasted starkly with the situation a year ago, when polyols prices in southeast Asia held firm through the Q3/Q4 period.

Like their counterparts in China, many foam makers in southeast Asia are also cautious in their procurement, as apprehensions builds of a pending economic slow-down in the region.

The  private purchasing manager indexes (PMI) for Indonesia, Thailand and Malaysia were lower in October month-on-month.

As long as the demand in Asia, from China to southeast Asia, does not improve, prospects of any near-term uplift in polyols pricing may be dim, market participants said.

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Focus article by Ai Teng Lim

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