Market Reports

Rising and falling persistently

2013-10

Table of contents

Plastic Market in October. 2

International Oil Price（WTI）——Falling persistently. 2

Upstream monomers——Rising andfalling at times 3

Plastic raw materials market——A widening difference between soft and hard plastics . 6

Plastic Market Forecast in November 2013. 10

The economy—Generally optimistic. 10

Prospects——A rugged journey for climbing hard plastics 11

Appendix—Major Events 14

Plastic Market in October

International Oil Price（WTI）——Falling persistently

Figure 1：International Oil Price（Aug-Oct 2013）

Source:NYMEX

The WTI generally went downward in October. The seasonal overhaul for US refineries began and the utilization rate fell by 3%. Although the US oil imports decreased by about 2 million barrels, the total inventory still rose by 4.1 million barrels to about 400 million barrels during the last week. It was the sixth rise consecutively and the high inventory pressurized the oil price.

With easing tension in the Middle East, WTI fell to a 3-month low at USD101.21. In mid-October, the first closure of the US Government in 17 years hit the public confidence in the economic prospect of the US. The 16-day shutdown added uncertainties to the economic orientation of the US. In addition, the US consumer confidence in October fell to a 9-month low at 71.2. The WTI fell below the level of USD100, from USD104.10 to the monthly low at USD96.77 / barrel.

At the end of the month, the US Federal Reserve Board announced after the 2-day regular meeting that the scale of the 3^rd round of quantitative easing monetary policy would not be reduced at the moment, so as to promote economic growth and employment. This meant the printing of more banknotes would be continued. This supported the price of oil commodity futures calculated in USD and limited the fall in the oil price. Generally speaking, the average WTI in October was USD100.68, a 5.5% fall from the average last month at USD106.56.

Upstream monomers——Rising and falling at times

Figure 2： Upstream monomers SM&C3（Aug-Oct 2013）

Source: Chem 99

Under the influence of the end of the ‘October 1 Golden Week’ holiday, the price of SM (Styrene) fell drastically. Some traders began to cut their stock inventory and the price of SM fell further. Also, the port inventory in East China began to rebound after a 7-week fall. As of late October, the price quote in China reached the lowest since 20 March 2013. The price quote of Styrene in Asia was USD1608, a drastic fall to nearly the 5-month lowest.

Since March this month, the price of SM stock continued to rise. Subsequently, since production resumed gradually after the annual overhaul, the SM inventory in East China increased and some of the European SM stocks rose due to arbitrage, the supply of SM was quite abundant. In addition, after the‘October 1 Golden Week’ holiday, the demand for downstream processing industries, such as ABS and PS gradually entered the slack season and the demand for SM also reduced. This formed the falling trend of SM in October.

The peak season of the demand for acrylic acid, a downstream product ofC3 (Propylene) was concentrated in October. Its rising price would increase the demand for Propylene, the upstream material. The polymer of Acrylic acid, which is obtained after the oxidation of Propylene, is used in synthetic resins, synthetic fibers, superabsorbent, building materials, paint, etc. Acrylic acid is often used in paint between July and October. However, with festivals like Christmas in December, Acrylic acid is widely used in adhesives. The rise in demand supported the price of Propylene.

In mid-October, the Residue Oil Fluid Catalytic Cracking(RFCC) of Dalin Refinery Plant, the China National Petroleum (CNP)-owned plant with highest Propylene production resumed production after 2 months of suspension. The daily production of Propylene increased from 600 – 800 tonnes to the maximum capacity of 1,200 to 1,300 per day. The increase in market supply also limited the increase in the price of Propylene. Therefore, the price of Propylene generally remained stable in October.

Figure 3： Upstream monomers AN&BD（Aug-Oct 2013）

Source: Chem99

Due to the mediocre demand and lack of supply after the ‘October 1 Golden Week’ holiday, the price of AN (Acrylonitrile) remained stable. However, as the price had already been at a low level, even though there were no factors supporting its price, there was not much room for it to fall further.

As the price of Polyester was quite low, the demand for the industries of the downstream Acrylic (Polyacrylonitrile) also stagnated. As for the market of another major downstream product, ABS, given that the traditional peak season was already over, its demand fell too. This also discouraged monomer chemical plants from manufacturing Acrylonitrile in bulk. They tried to improve the profit margin of the device by lowering the utilization rate. In October, the Acrylonitrile mainly consumed the inventory.

The price of BD (Butadiene) went up stepwise in the recent 3 months. The price of USD1690 in October remained until the end of the month. This price level was USD880 higher than the trough in July, 2013 at USD810. In October, the Taiwan CNP closed its no.4 cracker device and began the overhaul. As for YNCC and Lotte Chemical of Korea, due to the poor sales of Butadiene beforehand, they replaced naphtha in the past with Butane as the cracking feedstock. This increased the yield of Ethylene and Propylene, but decreased the yield of Butadiene. The supply of BD in the market also gradually reduced under the conservation and production reduction practices of the crackers.

Also, due to the rising demand for Styrene, another monomer material, the downstream Kumho Petrochemical shut its device in Ulsan down to begin an overhaul. The device produces 400,000 tonnes of SBR (Styrene Butadiene rubber). This also lowered the demand for Butadiene. The price of Butadiene continued to rebound slightly with restraints in both demand and supply.

Plastic raw materials market——A widening difference between soft and hard plastics

ABS

Figure 4： The Comparison of spot price and cost in an ABS market（Aug-Oct 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.

Due to the weakening seasonal demand for ABS and the falling in the price of its material Styrene, the downstream clients were less interested in restocking. There was more pressure for traders to sell their products. Therefore, the price of ABS remained steadily downward in October. Its difference with the production cost also gradually widened.

In October, most export-oriented enterprises entered into the slack production season. The corporate plastics inventory was at a relatively lower level. Most small enterprises made procurement according to orders received.

At the beginning of the month, the ex-factory price of ABS chemical plants remained steady. At that time some traders made higher price quotes for trial. However, with the slow market response, the mainstream price generally remained steady and fell medially or slightly. Starting from the late October, the fall in ABS intensified due to poor demand for stock, persistent falling oil price and monomer materials. It fell to as low as USD1869.

At the end of the month, Styrene shook off the fall but the rebound was not well supported and the price mainly fluctuated slightly. Together with the steady rise in the price of Butadiene during the whole month, ABS began to rebound at the end of the month.

PS

Figure 5： The Comparison of spot price and cost in a GPPS market（Aug-Oct 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.

Styrene, the upstream of GPPS fell by USD112 comparing with that at the beginning of the month. Its cost thus fell. Also, in early October, downstream factories prepared their stocks in advance before the holiday. As of mid-October, the pre-holiday inventory was still being consumed. The weak demand brought left the market in stalemate.

In October, East China was impacted by floods. The production of a lot of surrounding enterprises suspended. With a decrease in the demand for materials, the market supply of the South China market increased indirectly. This is also the reason that the market price could hardly go up. 

In mid-October, the spot market price was slightly higher than the ex-factory price. However, with persistent falling in the price of major material Styrene, the cost support further weakened. Also, as some downstream enterprises are smaller in scale and the production of products with low profit margins decreased, the incentives for the procurement of materials and production were hindered. The price of GPPS began to fall, though generally remained steady. 

As of late October, the low supply and demand for GPPS kept the price fluctuating at a high level. Throughout the month, the spot market price was higher than the production cost. 

PP

Figure 6： The Comparison of spot price and cost in a PP market（Aug-Oct 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.

As the shipments of PP from Saudi Arabia delayed heavily and there were fewer goods coming to South China, the market supply was supported. However, the refill of zero-tariff merchandises in China hindered the rising USD market to a certain extent. The end-use demand capacity directed the price orientation. In October, the market price of PP rose steadily. 

In mid-October, the floods in East China raised the demand for daily necessities and medical supplies, and thus the corporate PP consumption. Also, given limited circulation in the spot market, some traders slightly increased the price. However, downstream clients would maintain procurement based on the number of orders received. Market price remained high and there is still resistance to its increase. In general, it rose and stopped at times.

The price of PP in the recent 3 months generally was supported by its demand. The trading strategy of traders also adjusted according to the market. The shipment and stock volume of some brands is very tight. Therefore, the price of PP was always higher than its cost. 

Summary of October

Figure 7:The average and percentage change of the WTI,upstream monomers and plastic raw materials（Sep-Oct 2013）

The WTI fell in October and the fall in upstream monomer Styrene was more significant. The price of Butadiene rose by the largest extent. The price of soft plastics rose continually whilethe price of hard plastics fell continually. The two prices were becoming more and more polarized.

Plastic Market Forecast in November 2013

The economy—Generally optimistic

The market focus in October concentrated on the US. The US Government, which had suspended its services for 15 days, resumed operation at the very last moment. The two parties of the US reached an agreement over the budget negotiation. Although the economy of most areas of the US grew mildly, the weak economic statistics promoted the US Federal Reserve to continue with the monetary easing policy.

The manufacturing PMI of China published by HSBC in October was 50.9, better than market expectations. The 3^rd season GDP growth rate over the same period last year was 7.8%, indicating that China’s economy boomed in steadiness.

Statistics indicating the economic situations of the Eurozone in recent years in aggregate indicated that the economic growth of Eurozone in October accelerated. The Centre for Economic Policy Research, which is responsible for preparing this indictor, and the Italian Central Bank announced that this statistical indictor rose from 0.12% in September to 0.20%.

As the economic situation generally is generally optimistic, the consumer market is supported. There are still opportunities for export enterprises in the future market.

Prospects——A rugged journey for climbing hard plastics

After the post-holiday adjustment last month, the plastic raw materials market fell following the oil price rose above USD 100. The price of downstream monomers remained weak. The price of hard plastic also fell. Is there a chance for the market price of plastic raw materials rebound in November?

ABS

Supply and demand make up the plastic raw materials market. The toy industry, which consumes ABS mostly, has completed most of the Christmas order. Currently, the companies are mainly manufacturing inventory. Large factories have received orders until the end of the year. The disparity among the factories’ production will still widen. There are also factories having joint ventures with brand terminals. They have stable orders. The aggregate demand of the toy industry may be inferior to that of the traditional peak months.

Currently, most exports orders are upon completion. Most export-oriented downstream factories demand a smaller procurement of spots. The demand of some large-scale downstream factories is relatively more stable. However, with the New Year approaching, most of them reduce the scale of procurement and increase the frequency instead. The household industry has even orders throughout the year. Together with the rising electrical appliance and lighting industries, it is expected that the demand for ABS still exists in November to a certain extent.

With a falling in the price of upstream monomer Styrene, the chemical plant has a lower cost pressure that last month. However, driven by high-stranding oil price in the previous months, the price of upstream monomers remains high. Therefore, the factory’s cost of good to the current ex-factory price is still very high.

In the fourth season, if there is inventory pressure, the chemical plant often lowers the inventory level at this moment. Together with poor end-use demand, the ex-factory price may be lowered and production may be reduced upon a small demand.

Under the impact of lowered ex-factory price by the chemical plant in early November, the price of ABS tends to fall. However, at the same time, the market supply will dry up. With the market price is already at a very low level, it will only fall further to a limited extent.

Generally speaking, the prices of monomer materials still remain high, bringing a high cost pressure to the chemical plant. With decreased demand for goods on spot, the price of ABS is hindered. In November, the WTI may fall slightly and remain at around USD90. The price of ABS may fall slightly under the influence of oil price in early November, and rise slightly as of the end of the month.

GPPS

The price of raw material Styrene fell last month, which weakened the cost of GPPS. Together with reduction in the ex-factory price of some chemical plants, the market price remained steady and turned weak at times.

In November, the various downstream end-demands perform differently. Due to a lower gross profit, the impact of cost is profound on packaging material products. With a fair demand from orders, the demand for materials can hardly be released. Some traditional industries manufacturing with GPPS, such as CD cassettes and disposable plastic knives and forks, received good orders, indicating a good industrial performance. However, cost also constrains it to a greater extent. Some enterprises even refuse to take orders in order to reduce their loss.

The long orders received by some enterprises cover the whole November and the larger plastic raw materials consumption supports the demand for GPPS. Currently, the garment industry performs well. The demand for the respective part products, such as buttons and wire hangers, also rises. Procurement according to orders in the household appliance industry is also favourable to the demand.

Some small and medium household appliance enterprises had a lowered utilization rate in November. With fewer orders, factories’ incentive to purchase raw materials and produce may reduce.

The price of upstream raw material Styrene may rebound with an increase in the demand for EPS insulation board in winter. The cost of GPPS may fluctuate at a high level.

The chemical plant continued to limit the production of GPPS to retain the price level. In November, the chemical plant may adjust the ex-factory price according to the inventory level at year end. However, the pressure on quantity supplied is not actually alleviated. By that time, the ex-factory price will guide the market price significantly. With confrontations between the supply and demand, it is expected that the GPPS market may fall to a certain extent in early November. However, it will fluctuate slightly overall.

PP

With November approaching, market sentiments turn weak. The performance of PP remains stable in general and rises at time. Some chemical plants have no room for adjusting the ex-factory price downward, which further strengthens the market support. In addition, as the stock on spot is quite scarce and most traders do not have much supply, the mainstream market price of PP remains steady and goes up.

The home appliance industry using PP maintains a steady demand at the moment. November belongs to the 4^th season. The household appliance industry has a good amount of orders of which in larger volume are mainly anti-season products, such as fans used in summer. The market supply is able to support the market price of PP.

Currently, exports are becoming lighter and more environmentally-friendly. Comparing with some products, PP is better than the existing materials no matter on the product performance or production cost. The various favourable factors prompted enterprises to strive to produce with PP. Therefore, the future demand for PP is optimistic.

Downstream demand is basically stable in the 4^th season, so it is difficult to hinder the market to a large extent. The firm market price of PP still support and drive the sales. With a lower level in the inventory of chemical plants and stocks held by traders, the market supply becomes tight. The spot market price is thus supported.

Currently, the past competitiveness of Middle Eastern PP is gradually weakened due to sparse shipment schedule, tightened supply and increasing prices. Its market share is gradually taken over by South East Asian regions, including Korea and Taiwan. Following a gradual consumption of supply, it is expected that the price of PP will rise significantly in early November. Also, driven by demand, the extent of price increase will enlarge.

Appendix—Major Events

9 October 2013                 The whole production line of Satellite Petro-Chemical’s Acrylic acid plants in China suspended due to malfunctions. As it met with the tightened market demand after the ‘Oct 1 Long Holiday’, the price of Acrylic acid went up and brought up the demand for upstream material Acrylonitrile and Propylene.

23 October 2013                The downstream demand for Styrene turned weak. Also, as the suspended crackers resumed operations successively, material supply relaxed. These led to a sharp fall in the price. It fell consecutively for seven times to a 5-month low at USD1608.

24 October 2013                 The US oil inventory increased by 18.9 million barrels and reached the highest level since June. The US refineries lowered their utilization rate. The WTI fell to a 4-month low at USD96.86.

～The End～

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