OUTLOOK ’17: China PO declines to hasten in 2H on additional capacity

06 January 2017 01:55 Source:ICIS News

SINGAPORE (ICIS)–China’s propylene oxide (PO) prices will likely trend stable to soft in the beginning one to two months this year as demand is expected to diminish ahead of the Lunar New Year in late-January and market activity will likely remain subdued until mid-February, industry sources said.

The Lunar New Year holiday in China in 2017 will be from 27 January to 2 February.

Downstream polyols producers are unlikely to stock up significant PO volumes ahead of the Lunar New Year holiday this time round as foam makers – the downstream of polyols – are still running their plants at reduced rates following the excessive surge in the domestic prices of other feedstock toluene di-isocyanate (TDI) in October.

Polyols and TDI are the two main components used in the production of polyurethane (PU) foam.

However, the extent of any downside may be curbed by rising raw material prices including that of feedstock propylene in line with strengthening crude oil prices since November, albeit Shandong-based PO producers were still generating reasonable margins as of mid-December.

On 23 December, average domestic PO prices were at yuan Chinese yuan (CNY) 10,775/tonne ($1,553/tonne) DEL (delivered) China, while average domestic propylene prices were at CNY8,075/tonne ($1,164/tonne) ex-tank Shandong, according to ICIS data.

China domestic prices went through a roller coaster ride by plunging from its peak in mid-October by a cumulative 36%, or CNY5,000/tonne in absolute terms, to reach CNY8,900/tonne DEL China on 4 November.

Prices subsequently rebounded a tad to CNY10,425/tonne DEL China on 9 December.

Domestic prices had slumped despite shorter supply from output cuts due to ongoing environmental checks at Shandong plants since October.

This was because buyers’ concerns over prolonged supply disruptions from the checks were largely unfounded, with most plants having resumed normal operations by November.

Moreover, reduced output from foam makers as a result of sky-high feedstock TDI prices has stifled the demand for other feedstock polyols.

Spot import prices for PO in China peaked in early October in line with the surge in domestic prices.

Thereafter, average import prices tumbled by a cumulative 35% over a short span of one month to first-half July pre-upsurge levels at $1,100/tonne CFR (cost & freight) China on 4 November before stabilising and moving sideways within a narrow range until first-half December.

Looking further ahead, PO price declines may accelerate in second-half 2017 due to lengthening supply from new PO capacities expected to come on-stream in China and Saudi Arabia around the middle of the year.

Jinling Huntsman New Materials Co, a joint venture between China’s Sinopec and US’s Huntsman, is scheduled to start up its PO/ Methyl Tertiary Butyl Ether (MTBE) unit, with a 240,000 tonne/year PO and a 742,000 tonne/year MTBE capacity, in June or July 2017, according to market sources.

Middle East players have also been eager for news about new supply coming from Sadara Chemical’s integrated plant based in Saudi Arabia.

Sadara Chemical, which is a joint venture between US’s Dow Chemical and state energy firm Saudi Aramco, will mostly cater to the Middle East and North Africa markets.

Sadara’s 390,000 tonne/year PO and 400,000 tonne/year polyether polyols units are expected to be up and running by mid-2017, a company source said.

While northeast and southeast Asian suppliers have acknowledged that it is almost a foregone conclusion that they will concede market share to Sadara in the Middle East and Africa, the main concern now is whether these suppliers will be able to ward off the Sadara assault in their home turf in Asia.

Many of these suppliers are apprehensive about a reversal of trade flows in which Sadara’s methyl di-p-phenylene isocyanate (MDI), TDI, polyols and propylene glycol (PG) cargoes would infiltrate into most Asian regions, although its PO is believed to be entirely for captive use and will not be for commercial sales.

Rigid polyols combined with polymeric methyl di-p-phenylene isocyanate (PMDI) is used in refrigerators as well as insulation in the construction sector.

For polyols production, Sadara will focus on flexible slabstocks and polymer polyols when its polyols plant comes on stream while Dow’s plant in Thailand will produce less of flexible slabstocks and shift to produce more coatings, adhesives, sealants and elastomers (CASE) polyols, market sources said.

More PO volume being converted into polyols in-house in integrated facilities will thereby dampen the demand for PO and may indirectly put downward pressure on PO prices, the sources said.

Meanwhile, China PO import volume which has been dwindling over the past couple of years will likely remain largely stable in 2017, with regular shipment to come from the usual two sources, namely Saudi Arabia’s Rabigh Refining and Petrochemical Co (Petro Rabigh) and US’s LyondellBasell Chemical Co.

($1 = CNY6.94)

Top Image: Furniture made from polyurethanes (Photographer: View Pictures/REX/Shutterstock)

By Matthew Chong

http://www.icis.com/resources/news/2017/01/06/10067648/outlook-17-china-po-declines-to-hasten-in-2h-on-additional-capacity/