Price trends of oil, polymer feedstock and commodity polymers in Asia for the week ended July 19, 2010

21-Jul-10
OIL Oil prices dipped to hover around US$76 in Asia in the week of July 19, 2010. Mid week oil prices rose after a report by the US Department of Energy stating that crude stockpiles in USA fell more sharply than expected by 5.1 mln barrels last week. This was coupled with strong US company results that have stoked optimism of rising energy demand. The rise was followed by a dip below US$76 in line with falling global stock markets ahead of more key corporate earnings report - International Business Machines Corp., Goldman Sachs Group Inc., Coca-Cola Co., Amazon.com Inc. and Microsoft Corp. The markets await corporate earnings report of key companies, as investors seek an insight into the strength of the global economy from Q2 company results. The Dow Jones industrial average plunged 2.5% after last week’s disappointing data on US retail sales, housing and manufacturing. NAPHTHA Naphtha prices have fallen to US$620/MT in Asia in the week of July 19, 2010. Deteriorating demand situation has been compounded by reduced demand from Formosa Petrochemical due to a recent outage that forced the company to take off line its 700,000 tpa No 1 cracker for about 2-3 months. As a result term suppliers are being requested to postpone delivery of naphtha supply from August to December to ease Formosa’s high inventory problem. On signs of poor market conditions naphtha crack spread against Brent crude futures plunged to a 13-month low of levels just above US$60. Asian naphtha market is now a buyers market- South Korea’s LG Chem bought 25,000 tons of spot open-spec naphtha at a discount of US$12/MT andd, 100,000 tons of spot open-spec naphtha for H1-August delivery at discounts of US$4-5/ton; both to Japan quotes CFR. Hindustan Petroleum Corp (HPCL) awarded its export tender for 25,000 tons of paraffinic naphtha at US$3.50-5/ton below Middle East quotes FOB (free on board). Middle East producers, under heavy pressure, are forced to reverse some arbitrage shipments to Europe, but at limited levels amid ample stocks in the West. In view of a fleet of spot shipments from the Middle East amid lackluster demand in the region, Asian naphtha prices are likely to continue waning for the rest of the year. ETHYLENE Ethylene prices have weakened in the week of July 19, 2010, by US$10-30/ton to US$850-860/ton CFR NE Asia amid insignificant impact of Formosa’s cracker shutdown, increasing supply from the Middle East and improvement in supply due to end of cracker turnaround season in Asia amid sluggish derivative demand. Formosa already had high C2 inventory build-up ahead of a turnaround at its 1.03 mln tpa No 2 cracker. Spot ethylene prices gained ten dollars in the immediate wake of Formosa’s shutdown but have since fallen. Formosa shutdown is unlikely to have a strong influence on supply levels as initially anticipated since the company is said to have enough buffer stocks to meet its needs for the next month. Asian spot ethylene markets have lengthened this year with the start-up of Shell Chemicals' 800,000 tpa cracker in Singapore. Saudi Arabia has also increased ethylene exports in the last few weeks on lower PE operating rates due to the weak Chinese demand and an outage at a PE plant. Additional supplies from the Middle East have also begun to trickle in from Southeast Asia, since prevalent spot prices in Northeast Asia carry a premium of around US$50/ton when compared with Southeast Asia. A slowdown in Chinese economic growth in the second quarter signaled lower petrochemical demand in the months ahead. Under the current market scenario, petrochemical margins are expected to continue to be poor, hence buyers are in no rush to conclude deals, leading to weak downstream demand. PROPYLENE Spot propylene prices lost ground to fall to US$1025/MT in Asia in the week of July 19, 2010 as Formosa’s cracker outage was unable to subdue the impact of easing supply at the end of the cracker turnaround season amid sluggish derivative demand. Spot propylene prices, which had spiked by US$40/ton in response to Formosa’s shutdown, have since begun to move back, falling by around ten dollars in the week. Markets were dormant due to a vast gap between sell offers and buy ideas. Sluggish derivative demand is also a major contributing factor to price deterioration. Under the current market scenario, petrochemical margins are expected to continue to be poor, hence buyers are reluctant to conclude deals, leading to weak downstream demand EDC EDC prices have slipped to US$425/MT in Asia in the week of July 19, 2010 on subdued downstream demand. VCM EDC prices have stagnated at US$735/MT amid pessimistic market sentiments and weak demand from derivatives in the region. STYRENE MONOMER Styrene Monomer prices continue to dip, falling to US$955/MT in Asia in the week of July 19, 2010. The past week was volatile for styrene prices in line with fluctuating oil prices - styrene started the week on a steady note, moved lower to finish the week US$15/ton lower. Since the beginning of July, Asian spot styrene prices have recorded decreases of around US$40/ton on FOB Korea basis. Newer styrene capacities in China are exerting a continuous downward pressure on styrene prices aid weak derivative demand. POLYMERS HDPE HDPE prices have fallen to US$1045/MT in Asia in the week of July 19, 2010 on lackluster demand. Demand has languished as markets in China are very soft, where import PE prices moved downward this week to encourage sales amid negligible buying interest. Offers from the Middle East have been lowered mainly due to sluggish demand due to ongoing economic uncertainty. As prices are expected to continue to deteriorate further, buyers are in no rush to conclude deals. A Middle Eastern producer announced a US$20/ton reduction on offers for film grade, even as buyers anticipate a further price drop. Manufacturing in sectors such as household appliances that usually picks up in July-August in China, is awaited. Government efforts to control the real estate boom in China have led to a slowdown in the construction segment. LDPE LDPE prices have fallen to US$1265/MT in Asia in the week of July 19, 2010. Demand continues to weaken in China and outlook continues to be pessimistic on the lack of positive signals. The Chinese market is fundamentally weak and directionally poor. If demand revives next month, inventory levels are robust enough to meet the additional requirements. Deal conclusion is difficult despite reduced film offers. LLDPE Amid deteriorating demand, LDPE prices have dropped to US$1055/MT in Asia in the week of July 19, 2010. Offers from major Middle Eastern producers have fallen in the week, mainly due to subdued demand in China stemming from ongoing economic uncertainty. Buyers prefer to wait and watch in anticipation of further price cuts. Deals were concluded by Middle Eastern producer for film grade to China and Southeast Asia after a US$100/MT price cut last week. Another Middle Eastern producer announced a price decrease of US$50/MT, resulting in a corresponding decrease in the overall import level for film grade. Another Middle Eastern producer followed last week’s price cuts with a US$40/MT price reduction on film offers this week. POLYPROPYLENE Polypropylene prices in Asia have fallen to US$1155/MT in the week of July 19, 2010, mainly on subdued demand in the region, particularly China. POLYVINYL CHLORIDE PVC prices have declined to US$870/MT in Asia in the week of July 19, 2010. After following a mostly steady trend in June, prices in China’s domestic market started the month of July with price decreases. Ethylene and acetylene based PVC prices decreased by about US20/ton in July first week followed by declines of US$15-30/ton. Depressed demand is the main factor behind the consecutive price decreases. Prices have been reduced to promote sales, compelling many producers to reduce operating rates in a bid to cope with mounting inventory pressure. Faced with slow end product businesses during the summer months, buyers have been forced to cut operating rates by another 10-20%, with most converters placing their operating rates at 40-60%. As a result of economic overheating, the Chinese Government implemented credit curbs late last year directed at the property sector. This has proved to be a setback for PVC that has its main application in the construction sector. PVC demand will continue to be weak as the government will continue to curb the property market to prevent housing bubbles and contain inflation, lending requirements become more stringent. Bearish sentiment in the domestic market has also had an impact on players’ expectations for August import offers to China. POLYSTYRENE Polystyrene prices have moved down to US$1105/MT in Asia in the week of July 19, 2010. Softer feedstock costs as well as the low season for many PS applications are identified as the main factors behind the declining price trend. In China, import PS offers lost ground by US$10-35/ton for dutiable GPPS while non-dutiable GPPS lost US$15-20/ton on a week-on-week basis. In the HIPS market, dutiable import offers retreated by US$5-10/ton while non-dutiable offers shed US$15-20/ton over the same period. In the domestic market, PS prices softened CNY100-300/ton (US$15-44/ton) week-on-week. Most converters complained about the state of their end businesses as they chose to lower operating rates by an additional 10% to bring run rates at 50-60% of capacity. Local distributors also complained about the bearish market outlook, with several distributors suspending their PS business due to poor sales. Regional producers conceded to additional decreases of US$20-30/ton this week, but buyers continue to shy away from imports with the expectations of even lower prices in the days ahead. The bearish outlook in the Asian PS market is expected to continue over the near term assuming no major up-turn in upstream markets. ABS ABS prices in Asia have steadied at US$1775/MT in the week of July 19, 2010, amid limited deal conclusion, as buyers refrain from buying in anticipation of a further price cuts. Seller’s offers continue at US$1825-1845/MT CFR China even as buying bids remain pegged about 70-80 dollars lower.
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