2014-03
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Date: 3 Apr 2014
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Plastic Monthly（No.44）
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Struggles
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Author:Kim Lin-Marketing Department
Date collection: Rita Rong– Marketing Department
Website: www.sunta.hk |
Table of contents
Plastic Market in March. 2
International Oil Price (WTI)—— Wrestling between geopolitics and demand. 2
Upstream monomers——Both rise and fall 3
Plastic raw materials market—— A rebound. 7
Plastic Market Forecast in April 2014. 11
ABS. 12
GPPS. 13
PP.. 15
Appendix-Major Events. 16
Plastic Market in March
International Oil Price (WTI)—— Wrestling between geopolitics and demand
Figure 1: International Oil Price (Jan-Mar 2014)
Source: NYMEX
The referendum in Crimea, Ukraine in early March decided if the region would join the Russian Federation. Western countries warned Russia for intervening and the potential war risks triggered a rising oil price. It reached a 5-month highest at USD104.92.
In mid-March, the Chinese customs published exports statistics, indicating that exports have fallen by 18.1% last year, making it the largest decrease since August 2009. The oil imports last month also dropped by 18%. As China is the second largest oil-consuming country in the world after the US, her economic statistics is an important indicator for global oil demand growth. The declining exports worried the market and the WTI fell.
Eventually, the referendum in Crimea allowed the region to join the Russian Federation. This was followed by sanctions between the West and Russia. The US oil inventory had been rising 9 weeks in a row in this period with oil price being kept between USD98-USD102 as of the end of the month.
Upstream monomers——Both rise and fall
Figure 2: Upstream monomers SM&C3 (Jan-Mar 2014)
Source: Chem 99
In early March, the inventory of Styrene (SM) in Eastern China was as much as 170,000 to 180,000 tonnes, the highest since the end of 2006. This hindered the market in the South China market. Referring to the FOB Styrene price in Korea, it reached a low point at USD1539 early the month. However, many SM factories in Indonesia, Japan, Taiwan and South Korea entered the peak overhaul season since March. 1.22 million tonnes of production, which contributes to 7-8% total production in Asia, would be affected.
At this intense moment, a 6.2 earthquake hit Japan in 14 March. Petrochemical facilities such as light cracking plants and 6 SM plants were affected. With total annual production of 1.47 million tonnes affected, the price of Styrene began to rebound.
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Chemical plants suspended production due to earthquake in Japan in March |
Also affected by port inventory early the month, the price of Propylene (C3) remained stable and fell at times. In the first season, there were more overhauls of Propylene devices. Downstream PP plants cut production in response to falling supply of Propylene materials. Tight supply of goods from Taiwan was more explicit among PP plastic materials.
Propylene is extracted by cracking naphtha. Early this month, Showa Denko of Japan continued to supply naphtha with an annual production of 690,000 tonnes. The catalytic cracking (FCC) of Nippon Oil in Mizushima supplied 90,000 tonnes of Propylene while the Olefins conversion unit (OCU) in Kawasaki supplied 140,000 tonnes. In general, the supply of Propylene was quite abundant in Asia.
Figure 3: Upstream monomers AN&BD (Jan-Mar 2014)
Source: Chem 99
The price Acrylonitrile (AN) climbed in the first season of this year. In February, its price difference with upstream monomer Propylene was USD168/MT, the highest in 11 months. The price of Acrylonitrile in March was generally the same as last month.
In the overhaul peak season, some Acrylonitrile cracking plants conducted overhauls en mass, involving an annual AN production of 1 million tonnes. Supply thus became tight. Also, as rainy season in Asian countries like India, Vietnam and Bangladesh ended, their rubber tapped increased and the amount of Acrylonitrile used in manufacturing synthetic rubber also increased. This supported the price of AN.
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AN overhauls involved an annual production of 1 million tonnes |
The price of Butadiene (BD) began to fall in March despite stability in earlier 2 months. The major source of BD is by-products of cracking Ethylene from naphtha. Therefore the change in Butadiene production is related to the utilization rate of Ethylene devices.
The Fourth, the Fifth and the new Third light cracking plants of CNPC had their annual contractual Ethylene production increased by more than 30% from 900,000 tonnes in 2013 to 1.2 million tonnes this year. The price of Asian Ethylene had once fallen by 4% within a week in January. The FOB Korean price of Butadiene began to fall.
Butadiene is mainly used for synthetic rubber used in tire production. However, the leading role of automobile industry in tire industry declined in the last 2 years. According to China Association of Automobile Manufacturers, the domestic increase in automobile sales may only be 5%. Automobile for commercial purposes may not increase or even decrease. This hinders the demand for tires.
Plastic raw materials market—— A rebound
ABS
Figure 4: The Comparison of spot price and cost in an ABS market (Jan – Mar 2014)
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.
After the Lunar New Year, downstream factories resumed production bit by bit. However, the demand from February to early March was not boosted mainly because most customers remained conservative and adopted the zero inventory strategy. As a result, some chemical plants suspended public quotes in March. Their agents and traders thus made orders conservatively. As a result, stocks in market were gradually consumed and the amount of available was small.
In the overhaul peak season, CNPC also cut monomer materials supply to downstream chemical plants such as Chi Mei and Grand Pacific Petrochemical. A 20% to 30% cut of contractual supply was implemented. Most chemical plants cut production as a response. Some chemical plants scheduled water conservation and decreased production due to drought in winter. With conservative orders placed by agents and traders, tight supply worsened and there was an excess demand in late March. ABS thus rebounded.
PS
Figure 5: The Comparison of spot price and cost in a GPPS market (Jan-Mar 2014)
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 had been falling from last year. Its market demand did not improve as of March. Some chemical plants reduced their price to boost sales. The price had once fallen to USD1720/tonnes to domestic factories. Although its material Styrene continued to rise by small extents and increased its cost pressure, poor market demand allowed its spot price to remain low.
As of late March, the average USD market price was around USD1740. Some chemical plants in China raised the ex-factory price first by RMB200. This stimulated the rise in the USD market and orders must be made in advance for some models. With tight supply, the price of GPPS rose slowly.
PP
Figure 6: The Comparison of spot price and cost in a PP market (Jan-Mar 2014)
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 price of PP began to fall since the end of February. Although the market showed clear signs of recovery in March, the weak demand earlier made chemical plants maintained the ex-factory price and take orders limitedly. Agents and traders mainly consumed goods produced earlier.
Since mid-March, end demands began to flourish and stocks in the market are consumed. As of the end of the month, futures became common for goods produced in Korea. Delivery time for goods produced in Taiwan was even longer. The PP from the Middle East to Hong Kong remained scarce and experienced unstable shipment dates. As a result, PP became extremely rare in the market and its market price surged.
Summary of March
Figure 7: The average and percentage change of the WTI, upstream monomers and plastic raw materials (Jan-Mar 2013)
While SM rose slightly in March, upstream monomers other than oil and SM all fell a little. Although ABS, GPPS and PP rebounded at the end of the month, their monthly averages fell comparing with last month.
Plastic Market Forecast in April 2014
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ü Property market in China: Supply of new flats increased in Jan-Feb 2014 but the sales volume fell. This was very different from the hot market in early 2013. Property credit contraction also hindered the Chinese property market. |
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² Market often fell in February and March. As agents placed orders cautiously, the expected goods available in April are expected to be not abundant.
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Chimei gave 30% orders to agents when it opened quotes in 21 March. The ex-factory price of chemical plants is mostly driven by costs. |
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ABS
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Supply |
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Demand |
In the latest quote before April, the chemical plant received ABS price quotes from Formosa Chemicals and Chimei at USD1990/MT and USD1970/MT respectively. As the market price is still lower than the ex-factory price, agents make fewer orders. Market price rises and stops at times in view of tight stock available and fluctuating demand.
In the toy industry which utilizes ABS materials more, it is expressed that the orders this year are promising. Large enterprises receive stable orders and some upstream corporate clients even place additional orders at the end of march. This increases the usage of corporate plastic materials in April.
Some SMEs stated that they were bedeviled by utilization shortage after the Spring Festival and the utilization rate had not reached its full capacity. The situation will resume to normal in April. Also, as most orders received now are long orders, production can be arranged appropriately.
There will be more holidays in April. Easter is a holiday in Hong Kong while most factories in China will function normally. Enterprises making purchases in Hong Kong may exhibit goods before the holiday and even arrange orders by the end of March. It is expected that corporate materials demand will remain stable while the market price may rise slightly due to consumption of stock.
GPPS
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Favourable factors |
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Unfavourable factors |
The GPPS price quote received by the chemical plant was way higher than the cost. The trend of Styrene in April will direct the orientation of hard plastics market considerably.
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Styrene |
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Property sales |
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Proportion of insulation constructions |
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Demand for insulation boards |
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EPS |
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33% |
〓 Ⅹ
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Demand for insulation boards |
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Penetration rate of polystyrene boards
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Demand for polystyrene boards |
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16% |
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GPPS /HIPS |
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Property-related industries |
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Household appliances: Such as outer case of TV and inner case of fridges |
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Household goods: Such as lights, household appliances and tableware
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Other daily commodities: Such as toys and packaging containers
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ABS /SAN |
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27% |
How heated is the property market often affects the sales of Styrene. The Chinese politburo emphasized that the construction of affordable housing would be accelerated in October 2013. Although newly constructed areas decreased in the first two months of 2014, the confirmation of new policy orientation would increase the scale of construction gradually. Also, as many lands sold last year will begin construction this year, the scale will easily rise. With the arrival of the traditional peak season of housing sales, the demand for household commodities will also increase, which induces the demand for Styrene board materials and GPPS products.
GPPS materials, which are more used in the household appliance industries, may have a stable demand in April. However, it will take time to exemplify even though the property industry will boost the economic chain and the plastic materials sector. It is expected that the price of GPPS will remain stable in April.
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⊙As PP fell a lot in February and March this year, agents made fewer purchases. ⊙CD and cassette clients reflected good orders and Korean materials attracted wide attention. ⊙Some medical goods and stationery clients reflected that their orders increased by 20-30% comparing with last year. |
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⊕PP futures market became available in Dalian on 28 February 2014. More options were available in the futures market than before. This brings more price uncertainties. ⊕As some traders are pessimistic about the future of the mainland PP futures market, the prices fell and hindered the market price of PP in USD. |
PP
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Unfavourable |
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Favourable |
Currently, PP produced in Korea is more advantageous than Taiwanese PP in terms of prices and types available. Korean PP may take up a larger market share in the April PP market.
Overhauls are scheduled in the two PP production lines of Formosa Plastics from 2014/02/20 to 2014/03/21. As supply decreased from 2014/02/20 to 2014/03/21 and so do the related products, the price of Taiwanese PP is higher.
Early this year, the price of RMB futures market continued to fall. Some clients theoretically belived that the ex-factory prices in Korea and Taiwan would also fall and thus remained sidelined. The USD market thus remained stable and went down at times. However, with high costs and low inventory, chemical plants did not decrease their quotes. Agents also cut their orders. It is expected in April that the stock would not be abudant in the market particularly for copolymer and transparent PP. Futures and orders become the major mode of transaction.
For downstream demand, medical goods and stationery clients reflected that their orders in 2014 increased by 20-30% comparing with last year. Production schedule is full for April and the purchasing frequency of plastic materials is more regular. Attention should be paid to the domestic situations. If domestic materials suffered a dead stock, the sales of imported materials will also be affected. This may easily make PP rebound in April and remain stable.
Prospects——Orders preferred
A number of factors affect the plastic raw materials market in April, with supply and demand being the key to the market trend. By adjusting different supplies of production, chemical plants affect the market price positioning. As orders were placed cautiously in March, market supply is tight. With more holidays in April, traders will remain cautious and some goods may thus experience shortages. Also, as monomers hit a low point, they are not likely to fall further. Supply and demand will be more balanced than that in February and March. It is expected that the April price will remain stable and rise gradually, albeit slightly.
It is recommended that manufacturers should pay close attention to the quantity supplied of materials used in production and strengthen their understanding of shipment dates and ex-factory prices of chemical plants with materials suppliers. Advanced purchases should be made in appropriate circumstances to avoid impact on production and shipment dates.
Appendix-Major Events
4 March 2014 Tension in Ukraine allowed the oil futures in Europe and the US to rise by more than 2%. WTI rose to a 5-month high at USD104.92.
13 March 2014 The US Energy Information Administration announced that 5 million barrels of strategic oil would be sold in the market. WTI plunged by USD2 to USD97.54.
19 March 2014 Starting from March, many SM plants in Indonesia, Japan, Taiwan and South Korea entered the peak overhaul seasons. A total of 1.22 million tonnes of production, which makes up of 7% to 8% of total production in Asia, will be affected.
～The End～
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