2013-08
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Plastic Monthly (No.40)
Will there be a thriving demand in the next month under volatility?
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Author: Kim Lin– Marketing Department Date collection: Rita Rong– Marketing Department Website: www.sunta.hk
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Sunta Chemical Limited Plastic Monthly |
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Date: 6 Sept 2013 |
Table of contents
Plastic Market in August. 2
International Oil Price (WTI) – Volatility. 2
Upstream monomers – Ups and downs. 3
Plastic raw materials market – A steady downward trend. 6
Plastic Market Forecast in September 2013. 11
The economy – Optimism despite slight hidden worries. 11
China – Steadily improving. 11
Europe and America – Return to vitality. 11
Prospects – A widening supply-demand difference. 12
Appendix - Major Events. 14
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The civil rest in Syria intensified. WTI quickly rose by 5% to the highest in more than two years. |
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The summer peak demand season was about to end. Refineries prepared seasonal overhauls to convert their facilities, so that oil production can be reduced in exchange of more winter heating oil production.
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Source: NYMEX
In August, the International Oil price fluctuated around USD106 and made a number of low points. At the beginning of the month, the increase took off at around USD103. When it approached to USD108, it started to decline back to around USD103. At the end of the month, the WTI rose by 5% within two days to the highest level in more than two years, at USD110.10.
Summarizing Figure 1, the WTI was prevented from further falling at USD103. The main reason is that the summer peak oil demand season in Europe and America has brought about a larger inventory change. At the same time, an improvement in the global manufacturing means a slow increase in oil demand.
Although the US is the world’s largest oil importing country, the production volume of shale oil in the US has increased rapidly. With an increase in local production, the import volume decreases, which relieves the global oil supply shortage to a certain extent. Therefore, the oil price lacks the supporting force of keeping it at a high level.
Besides the above factors, the US Federal Reserve announced the latest monetary policy meeting minutes on August 22. According to the records, almost all participants supported what Bernanke proposed. If the economic development is in line with the earlier expectations, the Federal Reserve will consider reducing the monthly US850 million asset purchase scheme. With their profits locked, the profit-taking of oil traders will also bring down the WTI.
As seen from the supply side, the oil market concerned about the political tensions in the Middle East. Firstly, the strike at an oil port in Libya disrupted the oil export. Later, people were worried that the internal conflicts in Egypt may interrupt the oil exports from the Persian Gulf to the European and American market. At the end of the month, the intensification of the civil unrest in Syria made people worry about the oil production and transportation safety of the entire Middle East. These factors contributed to the increasing oil price.
In conclusion, the WTI in August was the join action of basic market conditions, external economic environment and tensional geopolitical situations.
Figure 2: Upstream monomers (Jun - Aug 2013)
Upstream monomers SM (Styrene) and C3 (Propylene) went in opposite directions in August. SM(Styrene) reversed its increasing trend and went downwards in August.
SM went back to USD1700, the level at the beginning of July. Its fall can be analyzed as follows:
(1) At historical high, the profit margins of the downstream plastic raw materials producers decreased. Their ability to undertake became weaker and weaker. The risk of falling SM also increased accordingly. When the market sentiments weakened, the price was likely to go down.
The East China inventory gradually increased in August. At the end of the month, the port inventory was 65,000 tonnes. Persistent import replenishments were provided for the market. The supply in the market gradually increases.
The South China market became less active as the price of the mainstream market went down. Also, Sinopec and PetroChina lowered the price of SM, which further enhanced the wait-and-see an atmosphere in the market and brought down the price of SM.
Summarizing the three points above, in August, the price of SM fell slowly from the 5-year high. At the same time, the SM plants in Japan, Korea and Taiwan entered into the annual overhaul period at the stage. As the aggregate volume involved in the overhauls in Asia will be a much as 1.29 million tonnes, the price was supported to a certain extent. The degree of falling is not high in general.
C3 went up slowing in August. Its rise can be analyzed as follows:
In Asia, led by Formosa Plastics, there were five crackers entering into the annual overhauls in August in succession. The suspension of Ethylene production will involve a total of 3 million tonnes. Also, led by CPC, three heavy oil conversion plants in the Northeast Asia would conduct annual overhauls, involving a total of 1 million Propylene productions.
Besides a decrease in production, the upstream naphtha (Ethylene and Propylene can be produced from naphtha with tube furnace pyrolysis). Its rise in price also brought up C3. From January to July this year, the production of naphtha decreased by 6.74% compared with the same period last year, to 15.167 million tonnes. The output rate of naphtha in Asian refineries somewhat decreased. When the decrease reached a certain extent, the short supply will be reflected in a rising price. The price of C3 will thus gradually rise under short supply.
Figure 3: Upstream monomers AN & BD (Jun - Aug 2013)
Source: Chem 99
The prices of other two monomers AN (Acrylonitrile) and BD (Butadiene) both rose slightly in August. AN has been maintaining a relatively steady trend in the recent 3 months.
Tracing the slow increase in the price of C3, the upstream raw material of AN, at the beginning of the month, AN continued its steadiness. However, at the same time, some manufacturers increased their price quotes. With the support of high costs and small supply, the market quotations rose steadily.
For downstream markets, main plants output. Both the acrylic fiber clearing of August and its listing price of September remained stable. In late August, the market sentiments of ABS turned weak. Some brands received relatively lower price quotes. In general, the rise of AN slowed down.
The rise of BD was more explicit than AN, with a monthly increase of over 20%. The rise was due to a fall in supply, as overhaul of the cracker under Formosa Plastics, which produces 1.03 million tonnes annually, had begun. In addition, although the Olefin furnace of CPC, which produced 720,000 tonnes annually, was tested, it had not been fed to the downstream. Also, as the speed of economic growth in China has relaxed and stabilized, it is expected that the car expenditure will rise, which releases the demand for tyres, so that the market price of raw materials can rebound.
When the market rebounds, the relevant industries increase their degree of replenishments. This also attracts the downstream tyre industry, mainly from the mainland, to speed up their development of inventories. This leads to the rise in the prices of Butadiene rubber (BR), Styrene Butadiene rubber (SBR), etc.
ABS
Figure 4: The Comparison of spot price and cost in an ABS market (Jun - Aug 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.
The price of ABS fell back in August after the rise. Some clients using HIPS before shifted to use ABS for the price of HIPS was higher than some specific models of ABS. ABS was chosen by more clients because of better performance and competitive pricing. With more alternative materials, clients also decreased their inventories. The market demand was generally as stable as last month without many highlights. Therefore, if the market sentiments weaken, the price will go downward.
In the first half of the month, the sport market price of ABS remained USD20-30 higher than its production cost, mainly due to the persistent fall of monomer material Styrene. Although the opening prices of various chemical plants differ, the opening price of the plant went down slightly in steadiness given a volatile monomer market.
Coinciding with the typhoon season, the unstable shipment schedule affected some Taiwanese goods and increased the price volatility. In addition, some traders held a bearish market outlook and remained cautious about replenishment. The goods on spot are still not abundant in the market. Some models are having a short supply. Generally speaking, the mainstream price quotes of ABS went down in stability.
PS
Figure 5: The Comparison of spot price and cost in a GPPS market (Jun - Aug 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 difference between the spot price quote and cost of GPPS has widened quite considerably in August. In late August, the cost reached the 2-month lowest at USD1811. At the time, the price of the main monomer material Styrene has fallen persistently for over a week. It accumulated a fall of USD74, dragging the production cost GPPS down.
As seen from the graph, the market price quote does not follow the trend of production cost closely. In July, the production cost was higher than the market price, but the latter did not rise following the former. The main reason was some manufacturers slowed their production down or even delayed their production because the cost exceeded their order price. Some manufacturers even reduced their production as some buyers refused to buy more expensive products. The aggregate market supply has thus contracted. Even though the cost was high, the market price could hardly rise substantially.
As of August, the plant also controlled the outputs given a high cost and small profit margins. The market volume has thus decreased. Some models even have a tightened supply. At the end of August, the shortage intensified, so that the spot market price remained high steadily even when the production cost decreased.
PP
Figure 6: The Comparison of spot price and cost in a PP Market (Jun - Aug 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 spot market price of PP went steadily up. At the beginning of the month, it has a difference of USD46 with the production cost. Later, as the price of monomer material Propylene rose and remained constant at times, the production cost rose like a ladder. In August, the price of Propylene rose by 1.9% and pushed the production cost ahead of sport market price.
As for downstream demand, most household industries use PP as their materials. Also, in the 3rd season, most corporations produce to fulfil the orders made for Christmas and New Year products. The demand was generally the same as last month.
Some PP plants raised their ex-factory price given the high cost and short spot volume, especially and month’s end. With a substantial increase in the oil price, the market sentiments were supported. Some petrochemical enterprises increased their ex-factory prices. Under this influence, most trade mentalities have improved. Also, as there was not much supply in the market at the end of the month, traders rarely reduced their product prices. However, given the demand has not shown significant breakthroughs, the price quotes of most models remained stable.
Summary of August
Figure 7: The average and percentage change of the WTI, upstream monomers and plastic raw materials (Jun – Jul 2013)
Concluding the plastic market of August, the percentage change of various monomers and materials varies. Besides SM which fell by 0.4%, the remaining all went upward. BD rose most significantly with 20.9%. All raw materials generally rose steadily.
Figure 8: The import volume and seasonal percentage change of ABS, GPPS & PP of Guangdong (Apr – Jul 2013)
Since the second season of this year, the import volume of ABS and GPPS was generally steady. The import volume of PP rose noticeably in July, meaning that the market demand for PP in the recent month was quite good to a certain extent.
Figure 9: The bar chart of client inquiry quantity (Jan – Aug 2013)
Source: Market Statistics Department, Sunta
The seasonal change in demand of some industries was not significant. Some industries also reached the final stage of peak sales. The demands for their goods fell. Generally speaking, the clients’ demand in August was less than in July, but generally the same as in June.
China’s Purchasing Managers Index in August was 51.0%, exhibiting a 0.7% increase from July. It remained ahead of the dividing line for 11 months consecutively and reached the 16-month highest. A rebound of PMI indicated that the manufacturing industry’s dynamics of economic development has increased. The dynamics is more significant when the index stabilizes and rebounds. The steady growth measures adopted by the Chinese government are coming into effect, which favours corporate exports.
In the Eurozone, the PMI in August rose to 51.4, better than the initial value. This shows that the region is recovering persistently although gently. Among the countries, Germany rose to a 25-month high, Italy attained a 27-month high; Spain attained a 29-month high while Greece marked a 44-month high. However, the unemployment rate of the Eurozone remains high. It was 12.1% in July. At the same time, a number of countries in debt in the Eurozone will encounter the challenge of peak debt maturity in September. The future economy is of high uncertainty.
However, the slight increase in the US consumer confidence in August was also a piece of good news to the economy. Consumers are more optimistic about the income expectation and have a stronger purchasing power of consumer goods. This increases the product demand and may promote the exports of foreign enterprises.
Although the external economic environment is good, there are slight hidden worries. The warfare in the Middle East war may provoke military intervention by the Western countries, which will hurt the own economies of the West. The market consumption power will fluctuate accordingly. To some export enterprises, the market consumption prospects will affect the subsequent orders to a certain extent. In the coming September, the corporate demands will become polarized. Brand enterprises or enterprises adept at research and development will receive sufficient orders; while some small and medium enterprises will have their operating rate reduced after the traditional peak season is over.
The electrical export industry and the production of small household appliances using the ABS more do not have much fluctuation. The toy industry is waiting for the orders for the Thanksgiving Day products. The educational toys, especially those exporting to the Japanese market, receive the largest number of orders. The situation is even better than the European and American market. However, as some enterprises delayed their shipping, they may not be able to have their capital returned from circulation on time. Under the uncertainty of subsequent orders and capital restriction, they generally insist on the procurement model of purchasing upon use.
At the end of August, the ex-factory price of ABS plants was fair. The supply was quite at ease. As the market sentiments were fair, the market price remained stable. The shift between the materials price purchased by traders and the actual market price will meet resistance to a certain extent. The ABS market will remain steady at the beginning of September. However, there may easily be a wave of pre-holiday replenishment prior to the Mid-Autumn Festival holiday. The demand could rise. At the same time, attention should also be paid to the growing aggressiveness of price quotes of some less durable goods from some traders in an attempt to lower the storage cost.
Regarding oil price, whether the Western countries would perform military actions on Syria will soon become clear. Oil price will be the first to be affected and may climb above USD110. However, some economic statistics will also affect the market sentiments. It is estimated that the oil price will hover around USD105-110. The price trends of oil and upstream raw materials will remain stable. In the first half of the month, the ABS market can easily restricted by demand and fall stably.
Currently, most of the industries use GPPS to produce disposable plastic knives plastic forks and other products, which constitute a stable demand throughout the year. As these products are consumables, they will not be reused in normally. Therefore, having considered the costs, the products will be small in size, light in weight and consume fewer materials than other household products. Apart from that, GPPS is also used for CD/DVD cartridges. These products are mostly of low profitability. As the GPPS cost is higher than the corporate production cost at present, production is hindered. Generally speaking, there is a small demand. Provided that supply is also limited, the price can therefore remain high.
In the coming September, the economic situations differ among different industries. Some enterprises still receive limited orders. Also, as the prices of some upstream materials like Styrene are still in stalemate, together with the approaching of the National Day Golden Week, the market demand can hardly be surprising. It is expected that the GPPS market will generally remain stable in September.
Apart from GPPS, PP is also used in some composite household products. Some production enterprises in the RMB market consider switching to purchase raw plastic materials in RMB for a more competitive pricing. Some industries producing aquarium materials have similar situations throughout the year with a stable quantity demanded. At the same time, some enterprises stated that the costs of PP products are in the acceptable range and the profits meet the corporation operation. They will therefore stabilize the quantity of the raw materials of PP purchased..
In the market, there are also PE and PP replenishments from the Middle East. But these Middle Eastern materials are mainly for locals with a small proportion for exports. Also, given the current tensions in the Middle East, transportation is affected to a certain extent, leading to a sporadic shipping schedule. Currently, PP is mainly dominated by the Southeast Asian market. The plant supplied in a smaller quantity. The newest price quote is stable. The traders have no pressure of holding the goods on hand momentarily and make price quotes according to the market conditions. In addition, the monomer Propylene rose steadily and has already exceeded the market price, forming a stronger upward pressure to the future market price. It is expected that PP will rise slightly in September in general.
9 Aug 2013 The US Federal Reserve might reduce the scale of the stimulation scheme later this year. Also, as the oil inventory was abundant, traders took their profits after having it locked. The WTI fell consecutively for 5 times to USD103.40.
15 Aug 2013 The shale gas revolution in the US exhibited effectiveness. The oil and natural gas production in the US increased drastically. US’s dependence on imported oil exhibited a falling trend.
17 Aug 2013 Armed protesters blocked most of the oil ports in Libya. The oil market’s worry about the situation in the Middle East remained. The WTI rose 6 times in a row to USD107.46.
29 Aug 2013 The crisis in Syria intensified. As the country is located near to the maritime oil transport line, a special geographical location, it was fear that the oil production in the Middle East would be implicated. The WTI rose by 5% in two days, reaching the highest in more than 2 years at USD110.10 / barrel.
～The End～
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