New York's main contract, light sweet crude for delivery in June ended the week of April 24, 2011 at US$112, while Brent North Sea crude settled at US$124.3 on the ICE Futures exchange in London. Oil is estimated to finish the week higher on several counts including an unexpected drop in crude supplies. Stocks in USA fell by 2.32 mln barrels to 357 mln, the first drop since February. Signs of improvement in US economy have stirred speculation that fuel demand may increase. Commencement of rebuilding in Japan post earthquake has propped up hopes of increased demand from Japan. At the start of the week, oil prices dipped to levels near US$109.
Naphtha prices ended the week of April 24, 2011 at levels above US$1075/MT in Asia. Fewer arbitrage cargoes for May arrival is leading to high offers. Price swings during the week were very volatile. On the first day of the week, Formosa bought upto 100,000 tons of naphtha for H2-May arrival at premiums of US$6, US$8 and US$10 per ton on a C&F basis, depending on the grades. However, few traders reiterate the market strength is not supported by fundamentals. Midweek, open spec naphtha for front-month H1-June fell by over US$26 to US$1039/ton. Formosa Petrochemical Corp plans to reduce run rates at its 2.93 mln tpa naphtha cracking complex to 90-95% from full-tilt. Polymer prices in Asia are not rising as fast as sellers had hoped to reflect the escalating naphtha costs.
Ethylene prices have risen above US$1355/MT in Asia in the week of April 24, 2011. Prices have not risen in line with rising crude and naphtha, amid lackluster trading in China. Markets have been dull as some derivative markets weaken amid a decision by the Chinese government to raise interest rates for a second time this year.
Propylene prices have inched up to US$1550/In Asia in the week of April 24, 2011. Spot propylene prices on an FOB Korea basis were mostly unchanged this week as buyers and sellers were unable to reach an agreement over pricing. Propylene supply is said to be sufficient within the region, but sellers are unable to offer any reductions amid persistently stronger oil and naphtha prices. Spot naphtha prices on a CFR Japan basis have gained more than US$55/ton, while spot propylene prices have lost ground by around US$25/ton since the beginning of April. Sellers face resistance from downstream PP producer who are unable to cover their theoretical production costs even at the current price levels.
Styrene prices have rose to US$1440/MT in Asia in the week of April 24, 2011. Firmer prices have been seen since the beginning of April in line with bullish developments in the upstream markets, pulling oil and subsequently benzene prices higher. Bullish upstream developments as well as an optimistic outlook regarding China’s EPS market contributed to this recovery.
In the week of April 24, 2011, LDPE stagnated at US$1680/MT, HDPE edged up to US$1375/MT while LLDPE rose to US$ 1400/MT in Asia.
Asian PE producers are considering reduction in operating rates in the coming month, as they struggle to achieve acceptable operating margins in the face of persistently stagnant demand that has pushed PE prices lower over the past week even as upstream costs continue to move higher, as per Chemorbis. PE prices have failed to move higher in response to upward pressure from the cost side as demand has remained poor and converters have offered stiff resistance to any attempts to raise prices. According to data from ChemOrbis Price Index, spot LDPE film CFR China prices have lost US$10-20/ton over the past month, spot LLDPE film prices have declined by US$20/ton on the high end of the range over the same period, while HDPE film prices have firmed up US$30/ton on a month over month basis. Given their unsatisfactory operating margins, a number of PE producers are said to be considering cutting their operating rates to shore up their position in the market. Chinese major Sinopec is reportedly planning to run a number of its subsidiaries’ PE plants at reduced rates throughout the country in May, with some sources predicting that rate cuts on the part of Chinese producers could reduce domestic PE production by as much as 50,000 tons next month. Some provinces within China are also said to be reintroducing electricity rationing, which could also result in lower operating rates for petrochemical plants in the affected areas. In Indonesia, Chandra Asri reduced rates at its 120,000 tpa HDPE line while maintaining normal rates at its 200,000 tpa HDPE/LLDPE swing plant, which has recently returned to producing LLDPE once again. The company has elected to reduce rates at their HDPE line given slower demand while adding that they will consider selling their ethylene feedstock rather than using it for PE production if their operating margins on their PE business do not improve soon. Malaysia’s Titan Petrochemicals was reported to be running its HDPE plants at Pasir Gudang and Tanjung Langsat, which have a combined capacity of 335,000 tpa, at 85% of capacity ahead of the upcoming maintenance shutdown at their petrochemical complex in mid-June.
PP prices have moved up to US$1640/MT in Asia in the week of April 24, 2011 along with feeble trade and waning demand amid reduced prices in domestic markets of China. Amid high feedstock costs, offers from producers continue to be high. However, traders have reduced offers in a bid to ease cash-flow, as well as attract buying interest in a lacklustre market. Market outlook continues to be unclear as supply is expected to tighten in Q2-11 due to a spate of maintenance shutdowns at plants in Middle East and Asia, and demand does not seem to be picking up.
PVC prices have risen past US$1210/MT in Asia in the week of April 24, 2011. Prices in Asia continue to move higher for May in defiance of the reduced consumption in China owing to the Chinese Central Bank’s recent decision to raise reserve requirement rates, as per Chemorbis. Extremely tight import PVC supplies across the region, rapidly rising domestic PVC prices in Southeast Asian markets as well as US$100/ton higher May sell ideas sought by Asian producers for VCM are said to be the main factors paving the way for new price hikes for next month. Import availability to China and Southeast Asia has been squeezed due to the absence of both American and Japanese supply sources, who accounted for almost 60% of China’s PVC imports from January to March. Japan has started to import PVC to cover its production losses and American PVC sellers have been diverting their cargoes to Japan in order to feed the market. Players expect prices to continue firming up over the near term in line with limited import availability and stronger VCM feedstock costs. In Southeast Asia, PVC buyers have been showing an increased appetite for import cargoes due to restricted domestic availability as a result of a VCM shortage and rapidly rising domestic prices in turn. This week, import PVC prices to the region rose by US$20/ton at both ends week over week. Sellers are predicting that PVC prices will remain firm over the coming month due to greater demand for import materials.
PET prices have dipped in Asia in the week of April 24, 2011. Despite the approaching high season for PET bottles, feedstock markets continued to soften. PX prices lost US$30/ton on FOB Korea basis while PTA fell by US$60/ton and MEG dropped US$10/ton on CFR China basis since the beginning of April. The decrease amounts are greater at US$55/ton for PX, US$120/ton for PTA and US$155/ton for MEG when compared to the beginning of March. Dips in upstream costs are mainly due to lackluster polyester demand from the textile sector in China that is loaded with high polyester inventories. Plus, talks of reintroducing electric rationing in China could lead to power cuts at some of these energy intensive textile factories and cause lower operating rates. However, it should be noted that despite the overall downward cost movements, PX prices recorded an increase of almost US$30/ton on April 21st vs April 20th, on reports from the US Energy Information Administration that US crude stocks fell 2.322 mln barrels week on week, against earlier forecasts of 1.6 mln barrels.
Producers generally feel pleased with the current demand as several large sized converters committed to large volume purchases ahead of the Labor Day holiday on May 1st. However, distributors mostly prefer to reduce their stocks as they are concerned about the cash flow problems on the converters’ side following the Chinese Central Bank's latest increase decision on reserve requirements for the fourth time this year. However, there are some plant shutdowns in the country this month which might prevent further dramatic cuts ahead of the high season. On April 18, Jiangsu Xinye shut its 100,000 tpa PET production line due to mechanical problems for 1 to 2 weeks. Meanwhile, Pan-Asia Polyester has begun their 3 week long maintenance shutdown at its 260,000 tpa plant on April 20. Looking at the export offers out of China, the overall offer range lost ground by US$50-55/ton on FOB Korea basis compared to the middle of April. Buyers prefer to wait in the sidelines as they expect to see further declines given the theoretical PET production costs based on current feedstock prices that are US$30-60/ton below the producers’ prevailing offers. PET producers are currently offering some discounts given their comfortable margins but these decreases are not likely to be in large amounts considering the signals of improving demand coupled with the approaching high season and firm oil prices, which are continuing to hover above the US$100/bbl threshold.