Market Reports

Rising trend continues Transactions restored

2013-11

Table of contents

Plastic Market in November. 2

International Oil Price (WTI)—— A steady retreat 2

Upstream monomers—— Going differently. 3

Plastic raw materials market—— Rising continues. 5

Plastic Market Forecast in December 2013. 9

The economy— varies. 9

Prospects——Begin to surge. 10

Appendix-Major Events. 13

Plastic Market in November

International Oil Price (WTI)—— A steady retreat

Figure 1: International Oil Price (Sep-Nov 2013)

Source: NYMEX

The abundant oil supply in November pressurized the oil price. Due to the commercial extraction of shale gas in the US, the commercial oil inventory of the US rose 8 times in a row in mid-November and maintained at the highest level since the 1930s. New York oil price had once fallen to the lowest in 5 months at USD93.76.

     Oil price declined in volatility. The increase in the price of oil futures further increased the profit margin of refining a barrel of oil and thus raised their willingness to increase oil refineries. As of late November, the increase in the oil inventory slowed down. Oil price reversed and rose to USD95.44.

    In November, Iran and Western countries held a number of negotiations regarding the nuclear issue of Iran. Eventually, a preliminary agreement has been reached. Iran would dilute most of its high concentration of uranium solution and limit the nuclear development hereafter. In returns, Western countries would relax some sanctions in the coming 6 months. Iran could maintain its daily oil exports at 1 million barrel. With worries over geopolitical risks decreased, oil price stabilized.

In conclusion, WTI maintained a steadily declining trend. The monthly average was USD94.03, a 6.6% fall from last month’s average at USD100.68.

Upstream monomers—— Going differently

Figure 2: Upstream monomers SM&C3 (Sep-Nov 2013)

Source: Chem 99

 Styrene (SM) declined steadily in November and traced the trend of upstream materials. As seen from naphtha, the one taking up the largest share, given oil price fell in general, the price of that material also softened. In addition, given that Asian cracking plants successively finished their annual overhauls, Ethylene on spot re-opened in the market. There was an increase in production. For example, the new third Naphtha Cracking Plant of CNP began its deliverability test with its utilization rate rose from the previous 85% to 100%, i.e. at full load. The daily production of Ethylene could rise from 1,900 tonnes to 2,300 tonnes, leading to a fall in the material cost of Styrene. Together with a limited rise in the price of PS, a downstream product of Styrene, the price of Styrene was dragged down overall. The November average was USD1618, a fall of 3.5% from last month’s average at USD1677.

Propylene (C3) remained steady and rose at times in November. Despite a falling oil price, the demand for downstream PP and Epoxypropane remained good. Some chemical plants increased the ex-factory price, which further increased the support for the cost of goods supplied, and thus increased the price of Propylene. Moreover, in September and October, the overhauls of crackers in Taiwan were concentrated, including Formosa Petrochemical’s second cracker in Mailiao whose annual production of Propylene amounted to 515,000 tonnes. The limited supply contributed to the rise of Propylene. The monthly average was USD1408, increasing 1.7% from last month’s average at USD1385.

Figure 3: Upstream monomers AN&BD (Sep-Nov 2013)

Source: Chem 99

The price of Acrylonitrile (AN) slightly declined in November. Upstream material Propylene rose by 1.7% while downstream product Acrylic fibre is still affected by the demand of the traditional peak season of yarn. With a falling temperature, rebound in the utilization rate of yarn factories and the rose in terminal knitting industry’s demand for yarn materials, the Acrylonitrile market is supported. However, another downstream material ABS suffered a limited demand due to the slack season of material use among traditional industries; demand for monomers was not well supported. As a result, with pressurized costs of and lack of persistent demand for Acrylonitrile, its market was in a stalemate. A trend of stability and falling at times appeared. The monthly average was USD1846, a 1.3% from last month’s average at USD1870.

Butadiene (BD) declined to a larger extent in November. When the new third Naphtha Cracking Plant of CNP increased Ethylene production, the daily production of Butadiene was also raised from 300 tonnes to almost 500 tonnes. The supply became more abundant, which further satisfied downstream demand for monomer materials. For some factories manufacturing synthetic rubber, under the influence of a rapidly rise in the spot price of upstream Butadiene last month, the profit margin declined and operating rate reduced repeatedly. This made the price of downstream derivatives difficult to sustain. Together with a decline in the price support of ABS, the price of Butadiene was dragged down. The monthly average was USD1500, an 8% decrease from last month’s average at USD1631.

Plastic raw materials market—— Rising continues

ABS

Figure 4:  The Comparison of spot price and cost in an ABS market (Sep-Nov 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 ABS market in November remained volatile. It fell slightly at the beginning of the month and rebounded from the low point in the middle of the month. Its market price rose, as driven by costs. The above graph shows that there was a 4.32% difference between the cost of chemical plant and market price. The market demand in slack season was weak. Chemical plant reduced the price at the end of October to stimulate sales. As of November, the ex-factory price was still below production cost continuously. The prolonged loss made the plant reduce utilization rate to limit the production volume. As there are fewer goods in the market and factories and traders remained conservative on procurement, the number of good on spot in the market was gradually consumed. Coinciding with a drive led by oil price in mid-November, chemical plant turned hard-line on bidding. In addition, the demand in Eastern China increased. As most traders witnessed a high-standing raw materials cost, their attitudes changed from conservative to active. The price was supported and thus went up.

PS

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

As the price of Styrene remained softened since November, the cost of GPPS fell back. In the traditional slack season, downstream demand of SMEs was weak and the number of orders declined compared to the same period last year. Some enterprises purchased with use and some traders lack confidence in the support of price. Despite inventory was consumed and the market prices varied, GPPS maintained a slight decline before mid-November. As for mid and late November, the sport market price stabilized. In general, the average of GPPS in November was USD1791, a 4.4% decreased from last month’s average at USD1874.

PP

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

In November, PP monomer Propylene fluctuated at high level. The cost support continued to strengthen. Shipments of chemical plant were mainly to the mainland, leading to a smaller volume of goods to Hong Kong whose price quote in USD than the past. In addition, as chemical plant’s outgoing shipments were unstable, there had often been delays in production and delivery date among factories. While traders continued to increase volume, chemical plant also continued to increase the price. With a larger demand than supply, the market price of PP continued to rise. The monthly average was USD1608, an 1.3% increase from last month’s average at USD1587.

Summary of November

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

As seen from the comparison in the market condition in October and November, for upstream monomers, apart from the rising Propylene, others all went down. Butadiene decreased by the largest extent. The prices of ABS and GPPS, both of which are hard plastics, fell by different extents. However, they rebounded from the low point starting from mid-November. As for soft plastics, PP outshined others and rose by 1.3%.

Plastic Market Forecast in December 2013

The economy— varies

With reference to the economic situations of major economies in the world, despite China had a smaller increase in its manufacturing PMI and New Export Orders Index, the rising trends indicated that China’s economy was stably optimistic. The rise in the New Export Orders Index of the US meant that it has a thriving internal demand, creating good conditions for China’s export market. The performances of various EU member states varied. The European Central Bank was very worried that the economic growth of the Eurozone would slow down. Therefore, it cut the interest rate in the earliest meeting to the record-low at 0.25% to stimulate the economy. Various countries strived for promoting economic growth. It is expected that economic development in December would remain stable.

Prospects——Begin to surge

December was the last month of 2013 at which Lunar New Year is approaching. Referring to the statistics of Canton Fair in November, the aggregate exports turnover over the year was 194.61 billion yuan (about US$31.69 billion), falling by 30% from last year’s figure. The turnover was the lowest in the past 7 sessions. In addition, under the influence of factors like rising exchange rate and costs, many exhibitors had their price pressed. Some household electrical appliance enterprises had their orders decreased. Yet at the same time, the ratio of short-term orders increased, indicating the latter demand was not abundant. Under this situation, how will the plastic raw materials market go in December?

ABS

The peak production season of traditional industries for export orders in December basically ends. The operation rate of the production lines of some enterprises declined. For the toy industry, production is mainly for inventory to control the inventory level. The principle of purchasing according to demand is maintained. However, with year-end approaching, some orders for Lunar New Year and Easter significantly increase. However, the demand for raw materials at this stage is shorter. In addition, as Lunar New Year begins next year in January, overall demand on spot explicitly improves.

The ex-factory price of chemical plant in recent months had remained lower than the production cost. In order to avoid heavy losses, limited production is maintained. Also, with demand in Eastern China increases, there is no more pressure on chemical plant’s inventory. The ex-factory price would be increased bit by bit in the hope of adjusting it to the reasonable level at which there is no loss. In addition, given that inventory is controllable at year-end, there is generally no need to rush sales and ask for orders. Waiting for market consumption of inventory under this circumstance makes the price more possible to go up.

At the same time, the March and April of every year’s end of first quarter is the overhauling period of chemical plant. Therefore, chemical plant has its peak season of replenishing inventory from December of the end of the fourth quarter to the period before Lunar New Year. Now upstream material Styrene shows signs of rebound from a low level. Also, before the Chinese Lunar New Year, chemical plant would have inventory read for production arrangements after the holiday. The season of replenishment is about to begin. It is expected that the above could bring about a craze for ABS replenishments, making the ABS market possible to experience a rise in price first and subsequent stability with limited supply.

PS

In the past 6 months, most upstream factories received 10% to 20% less orders comparing with the same period last year. The household and aviation industries which produce plastic knives and forks and CD box products maintain limited production. The wire hangers of the garment industry could maintain the production volume. As there are only 2 to 3 major competitive brands in the market selling GPPS and HIPS and the production volume could balance the market demand, the price (such as Figure 5) indicates that the market price could still be controlled at a level above production cost. The price is directly affected by the price of Styrene.

Styrene continued to rise from the low point in early March this year at USD1592 / ton. It met with the level of USD1596 / ton again in mid-November and rebounded again. It is apparent that Styrene was supported at USD1600 / ton.

WTI certainly affects its price. Following the arrival of the peak season of the demand for heating oil in December, oil price is supported to a certain extent. With the US’s technology of extracting shale gas developed, the worries over the suspension of oil supply from the Middle East are somehow offset. Oil price could possibly be maintained between USD93 to USD100.

Oil price generally remains stable. Monomer Styrene fell to a certain extent comparing with the price earlier months ago. The cost of GPPS was originally at a lower level. Styrene is very likely to stay around USD1630-1680 in December. The ex-factory price of GPPS is about USD1780-1830.

PP

The domestic demand for PP increased day by day. For example, the plastic pipe processing industry mainly uses PP materials in China could have an annual production of more than 15 million tonnes. The European Union is getting tough with the environmental protection standards of imports. Therefore, some manufacturers gradually replace the ABS materials in the past with PP. This further stimulates the corporate incentive of using PP as the environmentally friendly materials. Also, as the cost of PP is lower than that of ABS, other products also show signs of shifting to the use of PP materials.

The tense PP supply in November is expected to continue in December. The situation of HOMO PP is more apparent in this case. Also, with good domestic demand, chemical plant has more goods directed shipped to mainland ports, or some goods from Hong Kong were shipped and sold on mainland. This made the market supply in USD scarcer. Clients are worried again mainly due to tense production of chemical plant and the disruption of normal production due to delays in shipments. This involves the production points of chemical plant, such as Saudi Arabia, Singapore, Taiwan and Korea. Goods on spot are once again pursued in the market. Most traders have their inventory emptied and have mainly transactions of futures.

Due to growth in demand, chemical plant gradually raises the ex-factory price. From the low point of PP in May this year at USD1472 / ton to USD1670 / ton at the end of November, the price of PP climbed by USD168 / ton. With the promotion of tightened supply and optimistic end-user demand, it is believed that the price of PP would continue to increase.

On the other hand, the production costs of clients also rise accordingly. The fall in the profit of product orders may be due to the rise in price, making clients take up the pressure once again. They thus slow down the frequency of raw materials replenishments. This restricts market transactions to a certain extent.

The rise of PP is explicit. However, as it has reached the highest in 2 years, it is difficult to have another great upward breakthrough. In December, if there are no big fluctuations in the macro economy, the market price of PP is very likely to adjust at a high level. The market may still move upwards with limited goods on spot, but it is difficult to have a persistent and drastic increase.

Appendix-Major Events

6 November 2013             Seasonal overhauls take place in European and American oil refineries. The US oil inventory grew by 8% in aggregate over the past 6 weeks. WTI reached a 5-month low at USD93.37 / barrel.

7 November 2013        The new third Naphtha Cracking Plant of CNP increased its utilization rate from the previous 85% to 100%, i.e. at full load. The daily production of Propylene rose from 1,000 tonnes to 1,200 tonnes, while the daily production of Butadiene also rose from 300 tonnes to almost 500 tonnes.

13 November 2013             Hit by the news of abundant oil supply, the peripheral oil price fell. New York oil price fell to the lowest in almost 6 months at USD93.04.

～The End～

Our Plastic Market Report is mainly to promote the market interactions among customers and provide reference information related to the market trend to customers. Also, we also pay attention to the communication and interaction between different enterprises. We welcome the enterprises which are interested in discussing the market to contact us and strive for promoting exchanges jointly. If you have any suggestions or queries, you are welcomed to contact us through:

Company Information

Hong Kong Office:

Room 809-811, 8 Commercial Tower

8 Sun Yip Street, Chai Wan, Hong Kong

Tel: 852-2566 6103

Fax:       852-2570 1173

Email: hk@sunta.hk

Shenzhen Company:

Room 1611A, 16/F,

Shenzhen Aerospace Building,

4019 Shennan Road,

Futian District, Shenzhen, China

Tel: 0755-8884 0920

Fax: 0755-8884 0930

Email: sz@sunta.hk