Price trends of oil, polymer feedstock and commodity polymers in Asia for the week ended March 28, 2011

29-Mar-11
OIL Oil futures eased towards the end of the week of March 28, 2011, but continued to linger around US$106 as political tensions persisted in the Middle East. One of the latest developments in the Middle East crisis has seen members of the North Atlantic Treaty Organization (NATO) reach an agreement to take over enforcement of the United Nations-sanctioned no-fly zone over Libya. Expectations of oil demand from Japan bouncing back also provided some support to oil prices. However, Japanese oil imports are estimated at less than pre-quake levels of 4.2 mln bpd, while data suggests an extra 0.7-1.2 mln tons of extra oil on the market currently. At the end of the week, benchmark crude for May delivery dipped to US$105 on the Nymex, while in London, Brent crude dipped to US$115.5 on the ICE futures exchange. NAPHTHA Naphtha prices have risen to US$1000/MT in Asia in the week of March 28, 2011. Despite loss of demand from Japan, naphtha market in Europe remains tight as falling demand from Japan is outweighed by strong demand from the US and Brazil, as per ICIS. The market had been slightly oversupplied when the Japan earthquake struck on March 11 and there were fears it would lengthen further in the wake of the disaster. Several cargoes from NW Europe and the Mediterranean are heading to USA. The forthcoming US driving season has recently increased demand for naphtha to be used in gasoline-blending. In addition to this healthy demand, a curtailed supply has also added to tightness in the market. Because of some refinery run cuts, even with a reduced arb [arbitrage] to Asia, the European market remains tight. Also, as Japan’s own requirements for naphtha fall, all its unwanted naphtha is being exported to other Asian countries such as Taiwan, Korea and China. ETHYLENE Ethylene prices have risen to US$1300/MT in Asia in the week of March 28, 2011 amid rising crude oil and naphtha values. High stock levels in China and Taiwan along with poor production margins for PE have prevented ethylene prices from posting more substantial increases. A US$20 increase is opined to be comparatively modest given the massive disruptions to Japan’s petrochemical supplies caused by the earthquake as well as ongoing political turmoil in the Middle East. At the beginning of the week, steady prices were disrupted by an unexpected outage at Shell’s Singapore cracker. The plant has capacity to produce 800,000 tpa of ethylene, 450,000 tpa of propylene and 230,000 tpa of benzene. Japan’s ethylene producers have 23% of their capacity shut following the country’s March 11 earthquake and tsunami. Mitsubishi Chemical Holdings Corp., Japan’s biggest ethylene maker, will take at least two months to resume operations at its Kashima plant because of damage to berths, utility infrastructure and roads. Two naphtha crackers at the Kashima facility are responsible for almost 11% of Japan’s ethylene capacity and 2.4% of capacity in northeast Asia. Market outlook continues to be bearish amid ample stockpiles, poor downstream demand as well as planned shutdowns at derivative plants in the region PROPYLENE Propylene prices have spiked past US$1550/MT FOB Korea in the week of March 28, 2011, on supply constraints. Supply from Japan is likely to remain tight despite the restart of JX Nippon Oil and Energy's Negishi refinery. This is because JX Nippon’s 100,000 tpa Sendai refinery is likely to stay out of action for months, as per Platts. JX exports around 8,000-9,000 tons/month of propylene from its Sendai refinery. JX plans to restart its naphtha-fed steam cracker at Kawasaki with capacity to produce 404,000 tpa ethylene and 260,000 tpa propylene, around March 27. Its 270,000 bpd refinery at Negishi was restarted after an emergency shutdown on March 11. The Negishi refinery has two residue fluid catalytic crackers with a combined propylene production capacity of 140,000 tpa, for domestic consumption. Negishi output will be unable to cover the shortfall from the Sendai refinery. Also, crude processing capacity increase at JX's Mizushima refinery from 20,000 bpd to 400,200 bpd will not increase its propylene production significantly. EDC EDC prices have steadied at US$540/MT in Asia in the week of March 28, 2011, despite rising input costs and bullish sentiments in downstream PVC. VCM VCM prices have risen to US$985/MT CFR NE Asia on persistent limited supplies that have intensified with plant shutdowns in Japan. Extremely tight VCM supplies in Southeast Asia have caused some Vietnamese producers to shut their plants. Healthy demand for imports, as well as rising domestic prices in Southeast Asia in the face of a shortage of local and Japanese cargoes were cited as the main reasons behind the bullish trend across the region. POLYMERS HDPE April shipment offers from the Middle East were heard at elevated levels in line with robust crude values and firm spot ethylene prices. However, prices have dipped to US$1340/MT in Asia in the week of March 28, 2011. Producers continue to maintain higher sell ideas to the Chinese market, but have been unable to achieve prices close to their target levels since traders have a substantial backlog of previously purchased cheaper material, amid lower domestic prices. Demand has been feeble demand in China due to rising production costs as a result of recent government measures of interest rate and minimum wage hike as well as declining export demand. Negotiations are ongoing for April shipment CFR China offers heard from the Middle East at US$1335/MT. LDPE LDPE prices continue to stagnate at US$1710/MT in Asia in the week of March 28, 2011 amid high offers that have failed to attract buying interest. Offers were heard at elevated levels in line with robust crude values and firm spot ethylene prices. CFR China offers from Asia and the Middle East for end of month shipment have been heard at US$1730-1740/MT levels. But the markets await deal conclusion. Offers for locally-held LDPE film cargoes witnessed declines of CNY100/ton. Most Chinese producers are still operating well below their theoretical production costs based on rising spot ethylene prices. China has witnessed feeble demand on rising production costs amid recent government measures. LLDPE LLDPE prices have persisted at US$1415/MT in Asia in the week of March 28, 2011. Though producers continue to maintain higher sell ideas to China, they have been unable to achieve prices close to target levels as traders are stocked with sizeable stock build up of previously purchased cheaper materials. Markets have been sluggish on feeble demand in China. This can be attributed to rising production costs as a result of recent government measures. However, outlook seems bullish as LLDPE import demand from Japan is expected to develop in the coming weeks. Over 50% of Japan’s LLDPE capacity remains shut post-earthquake, resulting in imports to Japan in H1-2011. POLYPROPYLENE Polypropylene prices have risen to US$1650/MT in Asia in the week of March 28, 2011 in line with elevated offers amid robust crude and propylene values. Outlook seems bullish in anticipation of raised import demand from Japan, that has lost over 25% capacity that remains shut post-earthquake. In the Chinese market, deals have failed to conclude prices close to their target levels since traders have ample stockpiles of previously purchased cheaper material, amid lower domestic prices and weak demand. Demand has been feeble demand in China due to rising production costs as a result of recent government measures of interest rate and minimum wage hike as well as declining export demand. POLYVINYL CHLORIDE Polyvinyl chloride prices have risen to US$1145/MT in Asia in the week of March 28, 2011, on disrupted supplies from Japan. Several PVC plants have been shut in Japan, including Kaneka's 178,000 tpa Kashima plant, Shin-Etsu's 550,000 tpa Kashima plant and Taiyo Vinyl's 90,000 tpa plant at Chiba. Supply concerns abound in Asia in light of obstruction of almost 50% of PVC capacity in Japan, mostly located in the earthquake ravaged areas. A further hike is expected in prices. Following the US$50-60/ton increases for March, Asian PVC markets indicate another bullish month, with overseas producers seeking noticeable price hikes on April offers to China and Southeast Asia, as per Chemorbis. Higher offers and sell ideas are in line with players' expectations given scarce VCM supplies in Southeast Asia and tighter import availability to China as a result of the March 11 earthquake in Japan. In China, following the initial April announcements, prices for mainstream Asian origins rose by US$80/ton when compared with March done deal levels. Prices out of the US showed a similar pattern, with April offers for this origin being revealed US$20-30/ton higher to China when compared to last month. While more producers are expected to approach the Chinese market with similar increases, buying interest remains restricted for now. Although players are yet to report any done deals at the current prices, sellers are confident of concluding deals at these levels soon due to upward pressure from costs as well as ongoing supply difficulties. In Southeast Asia, import PVC prices for April have also moved higher. A Thai producer disclosed their April price with a monthly increase of US$60/ton, while another Thai producer re-emerged with a new sell idea this week which indicates an increase of US$120/ton from their March done deals, although no official announcement has come from this particular producer yet. Meanwhile, a trader offering Taiwanese origins implemented a second increase on April prices, bringing new offers US$50/ton above previous price level. Plus, he claimed to have sold some volumes at this new price level. Extremely tight VCM supplies in Southeast Asia, which has already caused some Vietnamese producers to shut their plants, healthy demand for imports, as well as rising domestic prices in Southeast Asia in the face of a shortage of local and Japanese cargoes were cited as the main reasons behind the bullish trend across the region. POLYSTYRENE In China’s PS market, overall demand remains sluggish despite the fact that the high season for PS applications is just around the corner. However, buyers in China are purchasing only need-based. This will ensure their cash flow amidst the measures taken by the Chinese government to tame inflation. Therefore, on a week over week basis, prices for dutiable GPPS remained stable but the dutiable HIPS range lost ground by US$10-40/ton over the same term. Despite the fact that the HIPS range softened, import HIPS prices still carry a US$180-200/ton premium over import GPPS on CFR China, cash basis. A similar situation also prevails in the Southeast Asian PS market, where import prices weakened over the past week on the back of the lower Asian styrene costs, which lost US$25/ton on FOB Korea basis in a week’s time. Despite the firmer oil prices which hover above the US$105/bbl threshold, Asian styrene prices still indicate around US$75/ton decreases when compared to early March levels. Looking at the import prices to Southeast Asian countries, GPPS prices lost US$40/ton at the high end from the previous week while they remain stable at the low end. Meanwhile, import HIPS prices dropped US$20-30/ton over the same period. Despite this softening, import HIPS prices continue to carry a large premium of US$150-200/ton over import GPPS prices on CIF SEA, cash equivalent basis. In Asia, the premium between GPPS and HIPS prices widened significantly as HIPS prices have been pushed higher when compared to GPPS on the back of the higher production costs, as per Chemorbis. Now, the gap between Asian GPPS and HIPS has reached a whopping US$200/ton. The main reason behind this large gap between the GPPS and HIPS prices is the higher production costs of HIPS. Butadiene costs moved up by US$150-160/ton on FOB Korea/Japan basis over a week’s time as demand from Japan revived. Japanese buyers are reportedly looking to make fresh purchases for the front month as they cannot be sure if the country will be able to recover from the affect s of the March 11 earthquake and resume domestic supplies. In plant news, Mitsubishi Chemical’s No.1 and No.2 crackers have been offline since the earthquake and they are not expected to resume operations for about two months. The producer’s No.2 cracker has 140,000 tpa crude C4 capacity, with feedstock supply to JSR Corp’s 148,000 tpa butadiene plant, shut on March 9 due to maintenance work. Meanwhile, JX Nippon Oil & Energy’s 70,000 tpa butadiene plant located in Kawasaki also halted operations due to the earthquake. The Southeast Asian market also suffers from butadiene tightness as Shell Chemicals declared a force majeure on butadiene supplies procured from Shell Eastern petrochemicals complex, (Singapore, Pulau Bukom Island). Shell has 155,000 tpa butadiene capacity in the complex. South Korean Honam Petrochemical also plans a shutdown on their Yeosu naphtha-fed steam cracker, which feeds their 130,000 tpa butadiene plant from 1-10th April.
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