2013-06
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Plastic Monthly (No.38)
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Wrestling in the Market |
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2013 |
Table of Contents
Plastic Market in June. 2
International Oil Price (WTI)—— A big fluctuation. 2
Upstream monomers – Varies. 3
Plastic raw material market – – Stable and rises at times. 4
Summary of June. 6
Plastic Market Forecast in July. 10
Plastic raw material market – Tightened supply stabilizes the price. 10
Plastic Market in June
International Oil Price (WTI)——A big fluctuation
Figure 1: International Oil Price (Apr - Jun 2013)
Source: NYMEX
International Oil Price fluctuated greatly in June, making the monthly average generally stable with a slight rise to USD95.40, a small increase of USD0.38 from last month’s average of USD95.02, or an increase of 0.4%
The WTI in early-June was USD91.97, the lowest in the month. Later, the uncertainty over the US Federal Reserve’s scale of debt purchase induced a fluctuation in the oil market, bringing WTI to the highest in Mid-June at USD98.44.
Afterwards, the market started to worry about information from China. Due to monetary shortage, the Asian stock market fell consecutively. The WTI also fell consecutively for 3 days by USD4.75, bringing the increase in early June and making the price level with last month’s overall.
Upstream monomers – Varies
Figure 2: Upstream monomers (Apr - Jun 2013)
Source: Chem 99
Source: Chem 99
Being derivatives of oil, the price of upstream monomers is generally stable. The price trend of each monomer is different after taking downstream demand into consideration, however.
Styrene (SM) rose steadily and reached a number of historical highs. The USD1719 in mid-June was the highest in 3 months. The June average was USD1672, a USD26 increase from last month’s average of USD1646.
The performance of Propylene (C3) varies at stages. It rose and halted at times but never fell in June. It has accumulated an increase of USD75.5 in June, pushing the monthly average higher to USD1313, a USD57 increase from last month’s average of USD1256.
Driven by Propylene, Acrylonitrile (AN) also rose and halted at times in June. It has opened for trading for 4 times in the entire June, with an accumulated increase of USD60. After the rise, the price restored to the level as of at the end of April, pushing the monthly average to USD1737, an increase of USD12 from last month’s average of USD1725.
Butadiene (BD) went very differently from that of Styrene, with falling and halting at times and making historical lows. In early-June, its USD1430 was about to reach $1400, the historical low since 2010. It remained falling slightly afterwards. At the end of June, its price was USD1120, making a historical low since 2010. Throughout the month, its prices has never gone up, bringing the monthly average down to USD1334, a decrease of USD133 from last month’s average of USD1467.
Plastic raw material market –– Stable and rises at times
ABS
Figure 3: The Comparison of spot price and cost in an ABS market (Apr - Jun 2013)
Source: HK Traders
The cost of ABS in the graph is 0.6*SM (Styrene) +0.25*AN (Acrylonitrile) +0.15*BD (Butadiene) +US$300. It hasn’t included expenses like terminal handling charges.
Throughout the entire June, the sport market price of ABS was higher than its production cost, the most distinctive difference from that of previous 2 months. The price of a mainstream ABS brand was USD1946 in early-June and USD1956 at the end of the month, without much difference. However, it has indeed risen significantly in mid-June and thus brought up the monthly average of ABS to USD1960, an increase of USD41 from last month’s average of USD1919.
PS
Figure 4: The Comparison of spot price and cost in a GPPS market (Apr - Jun 2013)
Source: HK Traders
The cost of GPPS in the graph is SM (Styrene) +US$120. It hasn’t included expenses like terminal handling charges.
The price of GPPS in June increased slightly in a general stability. The price of a mainstream GPPS brand was USD1842 in early-June and USD1865 at the end of the month, without a significant increase. As in mid-June, the cost of GPPS reached a 3-month highest at USD1838. The cost decreased later. Yet, as there is a tight supply in the spot market, the price maintained its stability until the end of June. The monthly average was USD1856, an increase of USD30 from last month’s average of USD1826.
PP
Figure 5: The Comparison of spot price and cost in a PP Market (Apr - Jun 2013)
Source: HK Traders
The cost of HOMO PP in the figure is calculated by C3 (Propylene) +US$120. It hasn’t included expenses like terminal handling charges.
The price of HOMO PP remained generally stable in June. The price change of a mainstream HOMO PP brand throughout June was USD17/MT. A rising trend was found mainly in mid-June, with a significant increase in its production cost in the period. Its cost at the end of June was close to the spot market price. Throughout June, the monthly average spot market price was USD1510, an increase of USD24 from last month’s average of USD1486.
Summary of June
International Oil Price (WTI)
In early-June, the oil pipeline from Cushing, the USA to Canada reopened. At the same time, the oil plant in Indiana, USA restored to production as scheduled by using oil imported from Canada, which exhausted the oil storage in Cushing and boosted the oil market.
As times goes by, the military conflicts in Syria were under spotlight again, which provoked a worry in the market on the oil supply in the Middle East. The oil price rose to USD97.85 / barrel, the highest since at the end of January.
At the same time, the policy statement announced by the US Federal Reserve in mid-June said that the monthly USD85 billion debt purchases would be maintained. As the US Federal Reserve printed more money for purchasing debts to boost the economy, USD depreciates and commodity futures counted in USD become more attractive to investors. Conversely, if the USD Federal Reserve reduces its capital injection, USD will appreciate. The flow of capital will make the oil price prone to a fall.
Due to the above factors, oil price first rose and fell then. The monthly average was USD95.40, a rise of USD0.38 from last month’s average of USD95.02.
Although the oil price fluctuates frequently, the average from Jan to Jun 2013 was USD94.23 / barrel, while the lowest and highest were USD91.98 / barrel and USD95.56 / barrel respectively. This indicates that the oil production countries maintained the price range from 90 to 100 / barrel to maintain a certain profit. Due to the oil demand in summer and the coming of the peak season for manufacturing companies, the oil price is not likely to fall but remain stable with slight fluctuations in general.
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The price of Propylene in June rose gradually is supported by oil price and a tight market supply. |
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The styrene device of Korea’s LOTTE accidentally stopped working on 10 Jun, involving an annual production of 560,000 tons. This enlarged the price difference between SM and its raw material Benzene to more than USD500, a historical high. |
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The peak season of natural rubber production in Southeast Asia started in June, which suppressed the price of synthetic rubber. The price of Butadiene in Asia fell to USD1120 / ton, the lowest in 46 months. |
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The demand for downstream yarn remained stable and increased at time, bringing up the demand for Acrylonitrileand thus the price of Propylene, the raw material. Also, the rising price of Propylene supported the price of Acrylonitrile in terms of the cost. |
Besides the falling in the price of Butadiene (BD), other 3 basic chemical raw material monomers all rose in June due to no replenishments after the overhaul season in most chemical plants until monomers are required in production. This releases the demand in a more concentrated manner, so that the price of upstream monomers went up in line with the increase in oil price. Styrene (SM) rose by USD26 / ton, Propylene (C3) rose by USD57 / ton and Acrylonitrile (AN) rose by USD12 / ton.
The reason why the price of Butadiene (BD) fell in June is due to the peak production of natural rubber in Southeast Asian countries like Indonesia, Thailand and Malaysia. With a successive supply, the price of natural rubber remained weak, which further affected the price of Butadiene, its upstream raw material. Also, the Sinopec Group opened a naphtha crack plant at the end of month, whose annual production of ethylene amounts to 800,000 metric tons. The plant’s sale of 120,000 tonnes of Butadiene capacity made the price of the material continue to go down. As a result, Butadiene fell by USD133 / ton.
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Supported by a high price of monomer material Styrene, the rise in chemical plant’s ex-factory price is significant. Supply on spot is scarce and there are mainly orders in advance. |
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The market price, types and quantities supplied of PP in June varies according to the origins. Most Taiwan-made PPs are made by orders. |
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The scarce supply of ABS goods persists, the spot price at chemical plants rose. Market price is subject to the tense supply. |
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Rose steadily |
According to the trends of ABS cost and market price, chemical plants could finally get away from losses mainly because of a reduced production volume, which balanced the aggregate demand. Being a traditional peak season, the demand was of course supported in June. Also, as both the prices of Acrylonitrile and Styrene rose to different extents, production cost was raised. Chemical plants increased the ex-factory price gradually and the market price of ABS remained stable and rose at times.
Both GPPS and HIPS were mainly on orders as traders were not willing to purchase much when they thought the price was not quite profitable. As goods on spot in market was rare, Styrene rose by USD26 from last month due to a high cost of materials and the rise in chemical plants’ ex-factory price. PS faces a tight supply and rise in price.
Due to differences in origins, the market price, types of goods and quantities supplied of PP varies. According to the supply and demand in the market, chemical plants raised the ex-factory price as a countermeasure. The sport market price remained stable and rose at times.
In general, the tense supply of good on spot in June was significant and most factories took procurement orders. Also, as there were some good shipment delays in Taiwan, the tight market supply further intensified and made the plastic raw materials market prices went steadily up in general.
Plastic Market Forecast in July
Plastic raw material market – Tightened supply stabilizes the price
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In terms of macroeconomic environment, the US consumer confidence in June reached the highest in 5 years. The demand for durable goods rose for the second month, meaning that manufacturing activities in July may accelerate.
The initial values of Purchasing Managers' Index of the Eurozone's manufacturing industries rose to 48.7 in June, the 16-month highest, meaning that the contraction of corporate activities in the Eurozone slowed down and showed signs of improvement. However, the consistent falling in new orders implied that there is still a long way to full recovery.
At the same time, due to news regarding liquidity tightened by banks, the Chinese stock market fell drastically, inducing a fall in the periphery commodity markets around. Economic development is hit to a certain extent.
To conclude, there are still a lot of uncertainties in global economy in July.The change in monetary policy may induce price volatility in the plastic market.
Prospects
As the market share of ABS is larger, the export in July is still considered to be optimistic given the Western economy. Also, in months of the traditional peak manufacturing season, the demand must be better than the 1st season. Chemical plants should adjust the pricing according to changes in costs so that the ex-factory price will be more indicative. In the typhoon-prone season, shipments may easily be affected. Also, if customs valuation decreases, Hong Kong's supply may shift to mainland. The tightened supply will thus affect the market price in USD. It is expected that the price of ABS will still generally stable before mid-July. However, the focus is still the price trend of Butadiene (BD). With a persistent falling, the price of BD is now unreasonably low. From the point of producers' view, loss on production will not be long-lasing. The price will rebound when the market absorbs the current stock. The projected drastic rise will take place at the end of July to mid-August. By that time the cost of ABS will undoubtedly be affected and will thus be subject to supply and demand factors at late stages, where there will be frequent small volatilities. But the chances of drastic fall or rise are not big.
PS is more accessible than ABS. The price is expected to remain at the current level based on 3 highlights:
The market price of PP changes following fewer brand options available in the market. Its high price often deters the price from going up further. But the cost of Propylene (CS) has risen by USD140 / ton from mid-April, while the product PP HOMO only rose by USD30/ ton, indicating a growing cost pressure. Also, from the difference between its cost and market price in Figure 5,the difference has diminished from the past US68 / ton to the current 0. As demand will rise in the peak season, the price of PP is very likely to rise steadily in July.
Suggestions
According to last month's experience on plastics, producers face rough production due to shipment delays. Managers often waste resources on this sudden problem. Upon understanding the problems of clients, the problems at different levels are found below;
Sunta suggested that clients should increase inventories for contingencies so that there will not be out of stocks due to less production in chemical plants, shipment delays due to weather or sudden changes in the market. Small volatilities are expected in July. If unit price becomes profitable, clients should take the low-price opportunity to increase inventories and lock up profits, so that fewer resources are used on purchasing and productivity and quality can be enhanced. But more importantly, purchasing strategy should be formulated to ensure a smooth production.
Appendix - Major Events
13 Jun 2013 On 10th, Standard and Poor's raised the credit rating of the USA from negative to stable as the economy of the USA is stable and the exchange rate of USD is strong.
21 Jun 2013 The share price of HSBC and the Chinese manufacturing industries slipped. The USA showed signs of reducing the economic stimulus plan. The International Oil Price crashed with the US stock market lately, with a closing price of US95.4 / barrel. The fall of US2.84 from the closing price of the previous day marks the largest daily fall since November 2012.
23 Jun 2013 OAO Rosneft, a Russian oil giant reached a 25-year deal worth US270 billion with China. It will supply 365 million tonnes of crude oil to China. Currently, the annual oil supply from Russia to China is 15 million tonnes.
25 Jun 2013 As the Southeast Asian regions enter the peak production season for natural rubber, the price of synthetic rubber is suppressed. The price of Asian Butadiene fell to a 46-month low to US1,260 / ton.
～The End～
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