2014-04
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Plastic Monthly（No.45）
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Prancing up |
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Date: 5 May 2014 |
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Author:Kim Lin-Marketing Department
Date collection: Rita Rong– Marketing Department
Website: www.sunta.hk |
Table of contents
International Oil Price (WTI)——High inventory puts pressure on rising oil price. 2
Upstream monomers——Overhauls are coming to an end. 3
Plastic raw materials market——Prancing up. 7
Plastic Market Forecast in May 2014. 11
Global economy——Struggling. 11
Plastic raw materials market——Mainly stable. 14
ABS. 15
GPPS. 15
PP.. 16
Appendix-Major Events. 17
Plastic Market in April
International Oil Price (WTI)——High inventory puts pressure on rising oil price
Figure 1: International Oil Price (Feb-Apr 2014)
Source: NYMEX
With the arrival of the second season, some oil refineries in Europe, the US and Asia conducted overhauls in view of relaxing demand. This lowered the demand for oil and the WTI fell. However, in the recent month, the oil market paid high attention to the relations between Russia and Ukraine as the former is the largest energy production country in the world. Some natural gas of the country is transported to Central Europe via pipes passing through Ukraine. As Western countries attempted to expand sanctions against Russia, geopolitical risks affect the energy economy. WTI thus rose in the first half of the month.
As of late April, the US Department of Energy announced the latest statistics on oil inventory. It is shown that oil inventory increased by 3.5 million barrels within a week and the overall oil inventory amounts to 400 million barrels, the highest amount since 1931. This announcement directly pushed the oil price down by 2% to USD102.13. It remained low until the end of the month.
Upstream monomers——Overhauls are coming to an end
Figure 2: Upstream monomers SM&C3 (Feb-Apr 2014)
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C3 rose from the low point starting from early April |
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SM March average USD1585 |
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April average USD1596,↑0.7% |
Source: Chem 99
Styrene (SM) experienced a falling price in February. At that time, the SM inventory in various ports in China rose to 180,000 tonnes, which was 3 times higher than the third season last year at 50,000 to 60,000 tonnes. The price fall in early March considerably dragged the March average down.
With temperature rising in April, the mainland construction industry gradually entered the peak season. The rise in EPS usage brought up the demand for Styrene. However, as summer has just arrived, the demand for building boards has yet fully released. With some cracking plants restoring supply, an excess supply results. In April, Styrene generally fell slightly but the average was still 0.7% more than that of last month.
The price of Propylene (C3) turned weak in March and reached the low point at USD1305 in early April. The reason is that the price of its downstream product Acrylonitrile keeps falling in the recent three months and cost pressure developed among manufacturers. The price of PP, another downstream product fell in February and chemical plants controlled the PP production volume in March. All these puts pressure on the price of C3 due to poor demand.
However, it’s particularly because of production volume in March being controlled by PP plants and digestion of the PP market in April that stock available is scarce. The price thus rebounded and this supported the rising price of Propylene. However, the wave of light cracking plant overhauls in Asia, including Taiwan, Japan, the mainland and Singapore, is coming to an end in the second season. The new Third plant of CNPC also allowed its 3 light cracking plants to work at full capacity in the middle of the month. With increasing supply of Propylene materials, the small rise of Propylene accumulated could not make the April average exceed the amount last month.
Figure 3: Upstream monomers AN&BD (Feb-Apr 2014)
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BD’s April average was USD1359,↑1.6% |
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AN’s April average was USD1966, ↓4% |
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The price of AN continues to go down |
Source: Chem 99
The price of Acrylonitrile (AN) remained weak starting from the beginning of the Lunar New Year holiday. This offsets the impact of decreased supply due to overhauls of cracking devices to a large extent. AN began to fall in April and fell by 4% comparing with the price in February.
Before the Lunar New Year holiday, AN has reached a 20-month high at USD2060. Downstream Acrylic fiber plants cut their utilization rate due to cost pressure. Also, as Spring Festival holiday were approaching, the demand for ABS materials slowed down and the demand for AN turned weak. The price of Acrylonitrile remained stable and went down at times with replenishments.
The price of Butadiene (BD) had been low since February. In the first season of 2014, the utilization rate of synthetic rubber enterprises in China fell by 30%. As a response, the demand for its material BD also decreased substantially. Also, with rising temperature, the limited inventory in chemical plants suppressed the rising price of Butadiene.
Most BD is extracted from naphtha. The overhaul new Third plant of CNPC was completed as scheduled in April and qualified products such as Propylene and Butadiene were produced bit by bit. Also, with the Fifth plant producing 500,000 tonnes and the Fourth plant producing 385,000 tonnes annually, Butadiene production is operated at full capacity. With replenishment of supplies, the market price of BD could hardly rise continuously and only rise slightly by 1.6%.
Plastic raw materials market——Prancing up
ABS
Figure 4: The Comparison of spot price and cost in an ABS market (Feb – Apr 2014)
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At the end of the month, the market price rose above its cost, resuming to normal trading standard |
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 price of ABS began to rise steadily from late March. It continued to rise slowly in April. Its major upstream monomer material Styrene rose slightly but Acrylonitrile fell. Overall, its cost went down.
Despite a falling cost, the cost was still above market price prior to early and mid-April. Both traders and chemical plants did not want a loss and take corresponding measures.
Hindered by demand, chemical plants could not raise the ex-factory price. However, there are no rooms for going down. The ex-factory price remained unchanged for a number of times and only production volume was controlled. As it was costly to make replenishments and demand was not high, traders did not place large orders. At the end of the month, demand released after the Easter holiday. Stock was consumed in the market and demand and supply were relatively stable. Market price began to go above the cost. In general, the declining ABS in stock allowed the price to go up slightly.
GPPS
Figure 5: The Comparison of spot price and cost in a GPPS market (Feb-Apr 2014)
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Difference enlarged in April |
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Difference shrunk in February and March |
Source: HK Traders
The cost of GPPS in the graph is SM (Styrene) +US$120. It hasn’t included expenses like terminal handling charges.
In March, as there had been frequent overhauls of major devices, monomer plants cut their supplies to downstream material plant by 20% to 30% than the values stated in contracts. The production cost of GPPS rose. The difference between cost and market price shrunk between February and March and they met at USD1736 in early March. At the moment, although the cost was high, the poor market demand forced traders to cut their prices for more sales. This hindered the market price and contributed to the shrinking difference between the two.
The market price of GPPS gradually increased starting from April and its difference with production costs widened. With fewer GPPS brands available in the market, the measures taken by chemical plants in view of poor market demand in February and March to limit production and save prices contributed to the tightened stock in April. This thus raised the market price.
PP
Figure 6: The Comparison of spot price and cost in a PP market (Feb-Apr 2014)
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The difference between the market price and cost in April was about USD50 |
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PP fell drastically in February and was close to the cost of PP |
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.
Due to a high price the year before, price quotes of PP from chemical plants and agents were adjusted downwards due to weak demand after the new year holiday in February. Goods in Korea and Taiwan were abundant and of great varieties. The price thus fell and touched the costs.
In April, most PP at low prices was of short positions. Subsequently, some chemical plants suspended the price quotes and increased the ex-factory prices of other brands. PP supply from Taiwan became short. In mid-April, PP from Korea became tighter, particularly for PP copolymer and most quotes were futures. As costs of replenishments were high, agents made purchases cautiously. This contributed to the lack of subsequent stock and stock on spot became tighter.
With shipments of goods from the Middle East decreased, irregular production time and tight shipments, the amount of goods was unstable. The PP market was quite heated at the end of April as the demand in East China continued to increase and mainland chemical plants raised their ex-factory prices. The accumulated rise compensated the low values earlier this month. As Propylene touched the low point of USD1305 earlier the month, the cost of PP was lowered and some chemical plants adjusted their ex-factory prices downward. Some traders were pessimistic about the market. With considerably different price quotes in the market, market price touched the low point. In general, the April average was as stable as that in last month.
Summary of April
Figure 7: The average and percentage change of the WTI, upstream monomers and plastic raw materials (Mar-Apr 2013)
WTI rose slightly in April while upstream monomers performed differently. Styrene and Butadiene rose a bit and drove ABS and GPPS slightly up. PP began to rise since mid and late April. It was generally stable comparing with last month.
Plastic Market Forecast in May 2014
Global economy——Struggling
With limited stock available on spot, the price in the plastic raw materials market did not increase much. Apart from demand, macroeconomic factors also prevented the price from increasing.
According to the National Bureau of Statistics, the annual increase in GDP of this season comparing with the same period last year was 7.4%, which was slightly lower than the 7.9% in the fourth season last year. As the value did not break the 7% in China’s GDP growth for a year, economic growth turned weak.
According to the US Department of Commerce, the growth of durable goods order in the US in March was 2.9%, the highest since November last year. This indicated that orders from factories increased. Being a major manufacturing country, China stated that her exports could be raised to satisfy clients’ demand.
China’s manufacturing PMI in April 2014 was 50.4 while HSBC PMI was 48.1. As the index lingered along the dividing line at 50, enterprises were indicated to be affected by factors such as rising material costs and difficulties in recruitment since Spring Festival. The manufacturing market stagnated and export enterprises seek development in survival.
Plastic raw materials market——Mainly stable
ABS
ABS is mainly used by the tradtional manufacturing industry. Large toy manufacturers mostly receive stable orders as such phenomenon is prominent in the industry. Factories stated that orders are fully scheduled in May. Some clients stated that they have placed advanced orders in April for the coming 2 months’ consumption of plastic materials.
To large manufacturers, SMEs are more likely to be hindered by difficulty in recruitment when it comes to competitiveness to receive orders. Utilization rate, and even demand for plastic materials, could be affected.
Most electrical appliance industries use more ABS as most appliances require warranty. Manufacturers can only take orders after fulfiling such requirement. Enterprises survived often are more competitive and receive more stable orders.
Products manufactured by some electrical appliance industries are highly seasonal. Summer arrives in May and fan heaters used in winter receive more orders. Comparing with two months ago, factories have more orders clearly.
Downstream demand may very likely be as stable as that in April. In early May, goods with small positions may appear in the ABS market. Market quotes could become varied and the ex-factory price of chemical plants could determine market price. With costs slightly decreasing, chemical plants begin to realize profits. It is expected that they would maintain a small output to stabilize ex-factory price. Agents would then have to make purchases with a higher price and thus remain cautious in replenishment. It is expected that ABS would likely remain stable in May.
GPPS
GPPS is applied in hanger industries. As the current European economy is recovering, the clothing industry is developing too. Most hanger corporations stated that their orders in May are optimistic. Some toy enterprises stated that with high standing wages and rent in the country, materials costs will directly affect their profits. Generally speaking, with orders available, they would purchase as much materials as possible to lock the profit.
Some CD/DVD cassettes clients stated that they received orders up till June and July. As profit margin is small, they are more price sensitive to the price of materials and most orders received are short-term. Some packaging and hangers manufacturers may use more regenerative HIPS black tablets with quality guaranteed and stick to use original materials to raise their competitiveness in taking orders.
GPPS is also applied in household goods. Big factories stated that they are easier to conduct recruitment and utilization rate of factories is high. Orders in May rise comparing with the same period last year. However, as clients also switch from PS to PP due to cost considerations, PS usage is gradually cut.
The demand for GPPS may stagnate when the price reach a certain level. However, with limited supply, a mediocre demand may maintain price stability in the market. The price of Styrene, upstream monomer of GPPS, affects the production costs of chemical plants. In view of limited downstream demand, chemical plants will cut production accordingly. Some brands of GPPS in May may increase slightly with limited stock.
PP
Orders in the hanger industry are balanced throughout the year. With an excess demand for PP on spot in April, orders become the major mode of purchases. It is expected that supply on spot in May would not be abundant. Apart from transparent PP from Korea and Taiwan, other brands experience a short supply.
Orders for household goods are more balanced. To raise profits, enterprises gradually use more PP. Apart from ABS, the toy industry also used synthesized PP. Supplies of some goods from Saudi Arabia are suspended in April. With higher ex-factory price for Taiwanese goods, PP from Korea also raised their ex-factory price. Also, most goods produced from chemical plants have already become preorders. The current stock available in the market is limited.
Yongjia chemical plants in Taiwan suspended the price quotes of some models until late April. Traders thus raised their price quotes. Ex-factory price of chemical plants remained high at the end of April. Traders did not want to risk having a high inventory in view of this. Stock could then be limited subsequently. The price will not surge in May but it is difficult to go downward.
Prospects——Entering the traditional peak season
May is the peak production season for traditional manufacturing industries. The price of plastic materials could remain stable with limited sources of goods.
It is suggested that customers should arrange their purchases with production volume when it comes to brands with limited supply. The tight supply of goods on spot could continue in May as in April and the mode of orders would be more popular.
Appendix-Major Events
14 Apr 2014 As SM factories in Asia began overhauls, supply would become tight. Quotes for SM rose and the prices of upstream materials Ethylene and benzene fell. There was much space for the profits of SM.
15 Apr 2014 The new Third light cracking plant of CNPC resumed Ethylene production and the supply of Ethylene of 720,000 annually would be resumed.
22 Apr 2014 Tensions grew in East Ukraine. With good economic statistics in the US, the New York Oil Price once rose 3 days in a row to the highest in 7 weeks at USD104.37.
～The End～
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