Olefins traders are going long on propylene and buying March cargoes at higher prices in anticipation of a market rally after the Lunar New Year holiday, as per market sources in ICIS. The recent spike in feedstock naphtha prices to above US$1000/ton (€740/ton) FOB (free on board) Japan and arbitrage deals to the US and Europe earlier this month also stoked the bullish sentiment, as per ICIS.
Three propylene spot cargoes changed hands at US$1330-1350/ton FOB Korea for loading mainly in late March during the week. These deals came on the heels of around 20,000 tons of propylene that were sold earlier this month partly at fixed levels of US$1360-1370/ton FOB Taiwan for loading mainly from late January to H1-February.
The propylene cargoes are expected to head to Europe and US Gulf/Mexico where both planned and unplanned cracker shutdowns have propelled prices higher than market levels in Asia. These FOB NE Asia deals are currently almost at parity to propylene CFR (cost & freight) northeast (NE) Asia prices, which were assessed at US$1340-1360/ton at midday on 1 February, according to ICIS.
Exports from South Korea are expected to be reduced because of higher domestic demand. Tongsuh Petrochemical is likely to start up its new 245,000 tpa acrylonitrile (ACN) plant in Ulsan in Q1-2013, with some market sources expecting the plant to come on stream by mid-February. LG Chem is reported to have started running its 420,000 tpa cumene plant in Daesan earlier this week. The increase of demand for propylene within South Korea would partly be offset by the start-up of GS Caltex’s vacuum gas oil (VGO) fluid catalytic cracking (FCC) around mid-March. The producer is expected to export the bulk of the propylene output estimated at around 250,000 tpa.
However, several turnarounds at propylene units in the region in March-April could keep supply snug. Other traders were more risk-averse as buying momentum from the leading China market had tapered off ahead of the Lunar New Year holiday and it remains unclear how the outlook would be like after the festive season.
Japanese producers have been selling propylene in the spot market as the country’s key consumer Nippon Shokubai is still awaiting approval from the government to restart its acrylic acid and super absorbent polymer (SAP) facilities in Himeji.
The units were ordered to shut by the government because of an explosion end-September last year, which included a 460,000 tpa acrylic acid plant and a 320,000 tpa unit for SAP. There is currently no official word when the facilities will resume operations but market sources expect the restart dates to be at the end of March/April.