2013-09
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Plastic Monthly（No.41）
Post-rise adjustment due to holiday effect
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Author:Kim Lin-Marketing Department
Date collection: Rita Rong– Marketing Department
Website: www.sunta.hk
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Date:7 October 2013 |
Table of contents
Plastic Market in September. 2
International Oil Price（WTI）——Falling from the peak. 2
Upstream monomers——A steady rise. 3
Plastic raw materials market——Small-scale volatility. 6
Plastic Market Forecast in October 2013. 10
The economy—Twists and turns. 10
Prospects——Steady hard materials, rising soft materials. 11
Appendix-Major Events. 14
Plastic Market in September
International Oil Price（WTI）——Falling from the peak
Figure 1：International Oil Price（Jul-Sep 2013）
Source: NYMEX
In early September, the Libyan oil supply was almost completely suspended. Also, Russia and the US, the two major military powers were opposed to each other on the issue over Syria. WTI has once risen to the 28-month high at US$110.53 / barrel.
The US Secretary of State subsequently demanded Syria to surrender its chemical weapons to the international community, with Russia made corresponding suggestions as well. The Syrian government’s acceptance of the suggestion reduced the possibility of military intervention from the US. In the financial market, people sold their goods one after another to avoid risks. The WTI fell for two days consecutively by 4% to US107.9 / barrel.
In late September, a framework agreement was reached between the US and Russia so that the Syrian chemical weapons would be handed to international organizations. The worry over the suspension of oil in the Middle East relieved. The market now focused on the US Fed monetary policy meeting instead. The oil price remained steady during this period.
Ben Bernanke, the chairman of the US Fed Reserve announced on 18 Sept (local time) in Washington that the current easing monetary policy would remain unchanged. The scale of the third round of Quantitative easing monetary policy would not be cut at the moment. The oil market began to fluctuate again, with a rise at first and a fall subsequently. At the end of the month, the oil price was at US$102.87 / barrel. The monthly average was US$106.56 / barrel, which was generally the same as the average last month at US$106.42 / barrel.
Upstream monomers——A steady rise
Figure 2： Upstream monomers SM&C3（Jul-Sep 2013）
Source: Chem 99
With the oil price fluctuating around the high level, the price of downstream monomers was brought up. The price of Styrene (SM) rose steadily in September in general. In mid-Sept, it remained around US$1770 / ton. At the end of the month it remained somewhere around US$1750 / ton. It is apparent that the price of Styrene remained steady in general.
In the first week of the month, the Styrene inventory in the Eastern China fell by 4000 tonnes to 43000 tonnes. The inventory of all traders and the downstream was estimated to be 84000 tonnes. The supply and demand affects the price of Styrene.
Starting from mid-September, light cracking plants in the Asian light cracking industry would begin the annual overhauls, which affected a total of 4 million tonnes of Ethylene production. This indirectly tightened up the material supply of Styrene.
In September, the property industry began to enter the traditional ‘golden nine silvers ten’ season. The construction and decoration industry thus heated up. The demand for Expanded Polystyrene (EPS), a wall insulation material rose, which also increased the quantity demanded for Styrene.
The above factors kept the price of Styrene high steadily in September. The monthly average was US$1756 / ton, a US$9 / ton increase from the last monthly average at US$1747 / ton.
Propylene (C3) generally remained the same trend as the one in last month. The volatility of high oil price in August and September favoured the Propylene market sentiments. The short supply in the domestic Propylene market remained. At the end of the month, the mainstream transactions were around $11200 / ton, a 2-year highest since 2012. The Asian Propylene market rose steadily with the same market sentiments.
Some major refineries began their overhauls and suspended production, which led to a contraction of supply. The no.2 naphtha cracker device of Formosa Plastics in Mailiao, with an annual Propylene production of 515,000 tonnes / year, began its overhaul on 16 September. Also, many cracking plants on the mainland began their overhauls in September. The Asian demand in the market increased, which also kept the price of Propylene high.
In conclusion, the price of Propylene in September remained high steadily. The monthly average was US$1399 / ton, a US$30 / ton increase from the average of last month.
Figure 3： Upstream monomers AN&BD（Jul-Sep 2013）
Source: Chem 99
The Acrylonitrile (AN) market remained steady with a rose of US$40 / ton at the beginning of the month. This slightly brought up the rising trend of the last month. As the price of Propylene remained high, the cost of Acrylonitrile was well-supported. At the same time, given a limited inventory in the chemical plant, most price quotes remained high.
Acrylic fiber uses Acrylonitrile as its production materials. In September, Acrylic fiber mainly adjusted according to market situations. Its demand for materials remained steady. As there were many holidays in September on the mainland, the market atmospheres before and after the holiday were relatively more stable. Replenishments to the Acrylonitrile inventory were hindered. The market demand and supply were in balance.
The price of Butadiene (BD) stepped up in September mainly due to the rising price of synthetic rubber. Also, as the price of Butadiene increased, the cost of synthetic rubber rose, which suppressed the profit margin of synthetic rubber and. The rate of Butadiene’s increase was thus affected.
The rise in the price of Butadiene was also due to supply constraints, as many devices in China, Indonesia and Taiwan could not produce according to schedule. This limits the quantity of Butadiene produced.
Overhauls also affected the volume of Butadiene produced. The second light cracker plant of Formosa Plastics, which produced 1.03 million tonnes of Ethylene, began its overhauls. As the supply became tight, the raw materials market of Butadiene was also pushed up.
In late September, due to public holidays, the markets of China and Korea became stable. The Butadiene market of the Southeast Asia also remained stable. The monthly average of Butadiene was US$1322 / ton, a rise of USD210 / ton from the average of last month at US$1112 / ton.
Plastic raw materials market——Small-scale volatility
ABS
Figure 4： The Comparison of spot price and cost in an ABS market（Jul-Sep 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 spot market price of ABS was generally stable in September. A relatively more apparent point to note is that the difference between production cost and spot market price was widening, mainly due to the sustaining high price of upstream monomer of Styrene. Also, the price of Butadiene climbed up gradually, which pushed up the cost.
As the price of monomers climbed constantly, in order to balance the cost, the chemical plant reduced its production to keep its market price steady. The ex-factory price rose by different extents.
As the ex-factory price has increased, some traders made replenishments cautiously as they held a bearish market outlook. Also, due to upcoming long holidays, inventory was mainly petty. The market supply gradually decreased. As of the end of September, the market price rose slightly.
With the above factors, the market price of ABS remained stable and went downward slightly in September. The monthly average was US$1951 / ton, a fall of US$11 / ton from the average of last month at US1962 / ton.
PS
Figure 5： The Comparison of spot price and cost in a GPPS market（Jul-Sep 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 rose first and fell back in September mainly. As the price of Benzene rose drastically, the profit margins of Styrene and GPPS products were hit hard. The production volume of the chemical plant remained low. Traders also adopted the low inventory operation strategy. Driven by costs, the sport market price fluctuated accordingly.
In late September, the holiday effect was more explicit. Some downstream plants use one-off products with lower production prices, such as products produced from GPPS. When the production cost was too high, the number of orders would be hindered. Therefore, the factory maintained the wait-and-see attitude before and after the holiday, and purchased fewer materials in general.
In September, most petrochemical enterprises enhanced their operating rates slowly. The market spot inventory remained low. On the other hand, due to high-standing prices, the downstream maintained a wait-and-see attitude sentiment, which kept the price of GPPS high in general. The monthly average was US$1901 / ton, a fall of US$14 from the average of last month at US$1915.
PP
Figure 6： The Comparison of spot price and cost in a PP market（Jul-Sep 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 remained stable and rose slightly in September. The rise in the production cost was larger, and remained higher than the spot market quotes for quite a long time. At the end of the month, as the oil price brought the price of Propylene down, the cost slowly went below market price.
The quotes from some Southeast Asian chemical plants remained high-standing. Most traders replenished fewer around the holidays. Also, as there was not much pressure on shipments, some models went up slightly. At the same time, customer made requires more cautiously. The amount of replenishment by downstream factories before the holidays is limited. The market remained relatively stable.
Some corporations using PP materials mainly, such as household items and electrical appliances have stable orders throughout the year. Their quantities demanded for PP are relatively steadier. Some factories taking long orders maintained their daily purchase, which supports the demand for PP.
In conclusion, the cost of PP remained high in September and its demand remained stable. The monthly average was US1553 / ton, a rise of US$20 / ton from last month’s average at US$1553.
Summary of September
Figure 7:The average and percentage change of the WTI,upstream monomers and plastic raw materials(Aug-Sep2013)
In September, the oil price and monomer markets rose by different extents. The plastic raw material markets mainly fluctuated slightly. ABS and GPPS remained steady and fell a bit, while HOMO PP went up.
The above figure showed that in the plastic raw materials market, the prices of GPPS & ABS fell slightly. But upstream monomers showed an upward trend. Although the plant adjusted the prices due to rising costs, the market price did not rise due to this. This showed the market demand in September was smaller than the quantity supplied in the market, including:
As for PP, its price remained reasonable due to small market supply and serious shipment delays in the Middle East.
Plastic Market Forecast in October 2013
The economy—Twists and turns
The Manufacturing Indexes of September reflected the economic development of various major economies to a certain extent. In the coming October, economic development is generally optimistic. The macro economy will progress in spite of the exploration of twists and turns.
Prospects——Steady hard materials, rising soft materials
October marks the entry to the fourth season. How will the plastic raw materials market go after experiencing the holiday effect?
The WTI fluctuates frequently due to the stance of Western countries’ military actions on Syria. As Syria submitted her first list of chemical weapons to the Organization for the Prohibition of Chemical Weapons, the US is now willing to hold bilateral talks with Iran. At the same time, the oil production volume in Libya gradually restores. As the tension in the Middle East is going to relieve in October, the oil price is likely to go down steadily.
The US is historically the largest oil importing country. The oil processing work of refineries in the East Coast mainly relies on imports. As imported oil is much more expensive than the US local inland oil, this drastic difference encourages refineries and commercial storage and transportation operating companies to invest on oil, so that the US local inland oil can be shipped to the East Coast. Also, with the development of shale gas, the US’s oil import volume decreases, which weakens the support of oil price in October.
Generally speaking, the WTI in October is very likely to stay around USD100-USD105 / barrel. At the same time, it affects the market sentiments of the plastic raw materials market.
ABS
Coming close to early October, the market price in USD was about USD 20-40 lower than its cost. Also, as the ex-factory price has been high-standing earlier and the National Day long holiday is approaching, traders mainly held a small amount of inventory. The chemical plant reduced its production to cope with the market in the face of constantly high-climbing monomer price, which increased the cost, so that excessive loss could be prevented.
As the market share of ABS is larger, even if its price is higher, it is still recognized to a certain extent. However, cost pressure still exists among SMEs. With the number of orders decreased, their corporate procurement strategies may change as well. Large enterprises or enterprises having their own brands would catch up with the stable orders to ship Christmas products.
However, the traditional peak season for the toy industry in October has passed. Comparatively speaking, the home appliances and aquarium industry have a higher demand. In the season of autumn and winter, factories produce off-season products, such as arranging orders for the production of fans and fishing equipments used in summer. The number of orders is good. Under this circumstance, the stable procurement may bring up the market demand after the national day holiday, which stabilizes the price of ABS. The prices of some models may rise due to limited stock on spot.
After mid-October, if the ex-factory price of the chemical plant went down, market sentiments might be brought down easily as well. The mainstream market price is very likely to maintain at around USD2000, exhibiting a stable downward trend.
GPPS
As the prices of naphtha and Benzene rose drastically, the manufacturers of Styrene also increased their products’ export price quotes. As selling monomers can earn profits easier, the chemical plant may tend to decrease the GPPS outputs. Given a limited amount of products in high cost, the ex-factory price could hardly fall.
Downstream factories generally produce some models of household and electronic appliances with GPPS. In October, there are corporations busy at manufacturing tableware for Christmas party, such as disposable plastic knives plastic forks. The factories have to make purchases according to production needs. Also, customers producing CD cartridges need to make purchases as well. However, as the industry is under great survival pressure, the material costs often hinder the enterprises’ ability to get orders. The corporations are more sensitive to the price of GPPS and make purchases cautiously.
There are also household products and household appliances taking long orders. They will make price quotes once or twice a year. The orders received can facilitate the production arrangements of the corporation for the whole year. For example, corporations manufacturing clothes hangers have their orders in October arranged before that. The clothes hanger industry generally has the best sales 1 to 2 months before the Lunar New Year. The volume of orders is even for the remaining months. Therefore, their purchases of materials are comparatively stable in October.
The market price of GPPS is close to the ex-factory price of the chemical plant. Together with the steady market demand, it is expected that the price of GPPS will maintain high steadily in October.
PP
The market price of PP remained stably high due to rising costs, supply and good market demand.
Some major PP chemical plants in the Southeast Asia have limited outputs. The prices are high. Customers frequently use the same model of goods will still make purchases even if the price is high. Also, it is very likely to have shipment delays in the Middle East. Customers will consider making order arrangements from other origins.
As winter is approaching, the demand for PP boards will increase, which supports the price of PP. If the Customs valuation goes down, a large amount of goods from the US market will be shipped back to the mainland market. This will bring the PP market price in USD up.
Downstream household product and household appliance corporations may still use PP. Larger corporations still have a large amount of orders in October. They will manufacture for the summer products in autumn and winter. Therefore, they will maintain a stable raw materials purchase.
Currently, for the sake of improving the product competitiveness, some large toy corporations planned to research on the replacement of ABS with PP and the cost of PP is lower than ABS and PP can pass the European certification requirements. To the customers exporting goods to the European and American markets, their future corporate capacity of taking orders will increase.
Generally speaking, the PP demand in October is optimistic. As there is limited supply in the market and the absence of inventory pressure among traders, its price is likely to go up steadily.
Appendix-Major Events
9 September 2013 Geopolitics pushed the oil price up. The WTI rose by US$2.16 over the previous trading day. It rose to US$110.53 / barrel, a 28-month high.
17 September 2013The US and Russia jointly announced that a framework agreement had been reached on resolving the chemical weapon issue in Syria. The WTI hit a 3-week low to US$106.59 / barrel.
24 September 2013 The second set of light cracking plant of Formosa Plastics, which produces 1.03 million of Ethylene annually, began the overhaul in mid-September. After that, production suspension and major overhauls, including the fourth naphtha cracker and plants in Japan, Korea and the mainland China will begin overhauls starting from the next month one after another. This wave of annual overhauls in the industry involves an annual production of 4 million tonnes ofEthylene.
～The End～
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