Firmer crude, Formosa shutdown provide some support to C2, C3 prices in Asia

13-Jul-10
Spot ethylene and propylene prices gained some ground last week in Asia following two consecutive weeks of falling spot prices, as per Chemorbis. Firmer upstream markets coupled with news of Formosa’s cracker shutdown are reported to be the main factors supporting the recent up-turn in the market level. After sinking as low as US$71.98/barrel on July 6, crude oil prices have been moving steadily upward, gaining $over four dollars to settle at US$76.09/barrel on July 9. Although ongoing concerns over the strength of the US economy and anticipations of weaker US retail sales figures for June helped push crude prices back below the US$75/barrel threshold on Monday, crude remains well above its intra-month low. While higher crude oil prices have provided some support from the cost side, news that Formosa will have to keep its No. 1 cracker at Mailiao off-line for the next 2-3 months has caused several sellers to withdraw spot offers for ethylene and propylene until a clearer picture emerges regarding the impact of Formosa’s shutdown on the region’s supply/demand dynamics. Formosa’s cracker, which has an ethylene capacity of 700,000 tpa and a propylene capacity of 350,000 tpa, was shut last week after an explosion occurred. In the period when the cracker is shut for repairs, it is anticipated that Formosa will need to purchase ethylene and propylene cargoes from the spot market to provide feedstock for ongoing operations at its downstream facilities. As a result of these developments, spot ethylene prices firmed up by ten dollars in Northeast Asia and Southeast Asia to regain levels last seen at the start of the month. Most traders were reported to be unwilling to conclude deals in anticipation that prices might see further upward movement over the short term. Other players remain bearish of the market’s medium term outlook, as the heavy cracker maintenance season in Japan comes to an end, and will keep the spot markets oversupplied. A stronger immediate effect was observed in the propylene market, where prices shot up US$40/ton on the final trading day of last week in response to the Formosa news. After a number of deals were reported late last week, traders offering spot propylene cargoes also withdrew their offers to get a better idea of the current supply outlook before making their next move. Players are also closely watching developments in the downstream PP market as weak derivative demand had been cited as one of the main factors weighing down spot propylene prices earlier in the month.
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