Weak buying sentiments in China to stagnate propylene spot prices

26-Aug-11
Propylene spot prices in China may not increase further on weak buying sentiments amid worries over the global economy and volatile feedstock crude prices, as per ICIS. The European debt crisis and the prospect of a double-dip recession in the US could affect demand for finished goods from China, which is the world's largest manufacturing and exporting hub. Chinese producers use petrochemicals to produce a wide range of consumer items from toys to textiles, which are exported to Europe and the US. Weakening demand from these key markets will have a significant impact on the supply chain. Offers and selling ideas for propylene cargoes arriving in September hovered at US$1600/ton CFR China this week, but this was met with weak interest from end-users who preferred to stay on the sidelines. Buying ideas are around US$30-50/ton lower at US$1550-1570/ton CFR China. Market sentiment in China has been dampened by news of restart of Taiwan's Formosa Petrochemical Corp (FPCC)'s crude distillation unit (CDU) at its 540,000 bpd refinery in Mailiao on 21 August that could lead to discontinuation of active spot propylene buying by the company. FPCC is likely to restart its No 1 residual fluid catalytic cracker (RFCC) and its olefins conversion unit (OCU) at the same site "very soon". The RFCC can produce around 325,000 tpa of propylene, while the OCU has a propylene capacity of 250,000 tpa. This week, domestic propylene prices in the key Shandong market were traded at around yuan (CNY) 12,000/ton ex-tank and may have limited room to move higher. Low operating rates at propylene facilities and plant shutdowns in Shandong during the period tightened domestic supply and supported the recent price hike earlier this month. Operating rates at atmospheric and vacuum distillation units in Shandong were at below 40% last week, according to data from ICIS. An increase in propylene prices seems impossible from this point, because of the volatile oil prices. End-users, especially powdered polypropylene (PP) producers, have retreated to the sidelines as they are sensitive to the propylene prices. Many of them have chosen to shut down or lower their plant operating rates and this will affect the demand for propylene. Propylene spot prices were assessed at US$1550-1600/ton CFR China last week, above PP yarn prices at US$1520-1560/ton CFR China during the same period, according to data from ICIS. PP makers typically need their product prices to be at least US$150/ton above those of propylene to break even, but they have been incurring losses for most of this year. The supply of propylene tightened because of a heavy cracker turnaround in the first half of 2011 and unplanned shutdowns at propylene plants in Japan and Taiwan, causing prices to maintain their high levels.
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