Market Reports

Hobbling

2014-05

 

 

Plastic Monthly（No.46）

 

Hobbling

 

Date: 6 Jun 2014

 

 

 

 

 

 

 

 

 

 

 

Author:Kim Lin-Marketing Department Date collection: Rita Rong– Marketing Department Website: www.sunta.hk

 

 

 

 

 

 

 

 

Table of contents

 

Plastic Market in May. 2

 

International Oil Price (WTI)——Climbing up. 2

 

Upstream monomers——Slowly moving ahead. 3

 

Plastic raw materials market—— Hobbling. 6

 

Plastic Market Forecast in June 2014. 9

 

Global economy——Going slowly but steadily. 9

 

Plastic raw materials market——Slight adjustments. 11

 

ABS. 11

 

PS. 12

 

PP.. 13

 

Prospects—Limited stock but stable prices. 13

 

Appendix-Major Events. 14

 

 

 

 

 

 

 

Plastic Market in May

 

International Oil Price (WTI)——Climbing up

 

Tensions grew in Ukraine. The good economic statistics in the US allows the oil price reached the highest in 7 weeks

 

On the eve of election in Ukraine, the US warned Russia that intervention in the election would lead to sanctions. The oil price thus went up.

 

Figure 1: International Oil Price (Mar-May 2014)

 

HSBC PMI of China stayed below the dividing line 4 months consecutively

 

Source: NYMEX

 

Table 1: WTI fluctuation (Apr – May 2014)

 

 

 

 

Earlier the month, the WTI was below USD100. In mid-May, it climbed to USD100.59 and remained above USD100 till the end of the month. In general, the oil price in May demonstrated a ‘U’ shape.

 

Oil price differed from the ‘n’ shape in April because the geopolitical risks in early April between Russia and Ukraine stimulated the oil price to go up. Eventually, oil inventory reached an 80-year high and the price went down. Oil price rose first and fell in April.

 

Being a major energy producing country, Russia’s natural gas is shipped to Europe via Ukraine. Deterioration of Ukraine-Russia relations would lead to Western countries’ sanctions against Russia. This supported the rise in oil price. On the eve of Ukraine’s election in late May, oil price had once increased to USD104.35. US leaders warned than Russia’s intervention into the election would lead to sanction against her. Oil investors were worried that such move would hinder Russia’s oil exports. Being the second oil-exporting country in the world following Saudi Arabia, Russia’s export sanctions would stimulate the oil price to go up.

 

Although the car travelling season in the US in May marks the beginning of the peak demand for oil in summer, Russia’s recognition of Ukraine’s election results and subsequent dialogues eased the tensions between the two countries. Generally speaking, the oil market average this month levels with last month.

 

Upstream monomers——Slowly moving ahead

 

Figure 2: Upstream monomers SM&C3 (Mar-May 2014)

 

 

 

Source: Chem99

 

Table 2: SM, C3 fluctuations (Apr – May 2014)

 

 

SM (Styrene) arrived in mid and late May in Eastern China amounted to about 50,000 tonnes. In terms of supply, the SM monomer of Orient Petrochemical of Singapore which produces 550,000 tonnes of SM annually suspended production due to unexpected failures. A production line of Taiwan Styrene which produced 180,000 tonnes of SM annually had to be repaired until June. As May is the traditional peak season for plasticizers demand, the demand for downstream PS and ABS production materials supported the price of SM to a certain extent.

 

However, for this year, as the property industry was not thriving, the demand for temperature insulation boards corresponding to the property construction industry fell. These expandable polystyrene (EPS) boards are made from Styrene. At the moment, most EPS manufacturers maintained an 80% utilization rate in China and the demand for Styrene in the construction industry weakened. This offsets the price support for Styrene due to overhauls and production materials PS and ABS. In general, SM adjusted downward stably comparing with last month.

 

At the moment, the major source of C3 (Propylene) is by cracking naphtha and cracking steam. Therefore, devices in cracking plants would reflect the supply of Propylene to a large extent.

 

There are 5 cracking plants in Taiwan, mainland China and Japan. Olefin production amounted to over 3 million tonnes would begin overhauls starting from May. The Fifth lighting cracking plant of CNPC which produced 500,000 tonnes annually entered overhaul after suspension of production in early May due to tripping. Suspension is expected to last for about 60 days. During the project, downstream factories would face more than 10% cut of materials supplies.

 

Cut in monomer material supplies supported the Propylene market. It upward driving force is also due to continuous improvements in the PP materials market. Facilitated by demands from chemical plants, the price of Propylene in May rose 1% comparing with last month.

 

 

 

Figure 3: Upstream monomers AN&BD (Mar-May 2014)

 

 

 

Source: Chem99

 

Table 3: AN, BD fluctuations (Apr – May 2014)

 

 

 

 

The price of Propylene, the upstream material of AN (Acrylonitrile), remained stable and went up at times. This pressurized the cost of AN and further crunched the profit margin of downstream product Acrylic fibre. Some Acrylic fibre plants cut production and maintained utilization rate at about 80%. This cuts the demand for its material AN.

 

Referring to the overhauls of Acrylonitrile devices in Asia in May, cracking plants of Tongsuh Petrochemical of Korea, Sinopec of Taiwan and Asahi Kasei of Japan conducted overhauls which involve about 400,000 tonnes of Acrylonitrile production. As hindrances to supply are relative small, the price of Asian Acrylonitrile can hardly be supported. In general, the price of Acrylonitrile in May went down slightly.

 

BD (Butadiene) is the major material of synthetic rubber and ABS products. Kumho Petrochemical’s BR production plant producing 327,000 tonnes of BR annually in Yeosu and SBR production plant producing 481,000 tonnes of SBR in Ulsan cut production in response to poor market demand. BR production was cut by 51% while SBR was cut by 15%. Its ABS production plants also cut production from 30% to 50%.

 

As the price of Butadiene went down slowly, the profit margin of monomer product contracted. Some cracking plants replaced crude cyclohexane (C4) naphtha with lighter LPG to produce a larger proportion of Styrene and Propylene but cut Butadiene. With a supply and demand deadlock, the price of BD went down stably in May.

 

Plastic raw materials market—— Hobbling

 

ABS

 

Figure 4: The Comparison of spot price and cost in an ABS market (Mar – May 2014)

 

With the market price of ABS higher than its cost, a price gap emerged

 

The difference between the cost of ABS and the market price was large

 

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.

 

Table 4: ABS fluctuation (Apr – May 2014)

 

 

 

 

The production cost of ABS was way above its spot market price in April. In May, the price returned to be above of spot market price and there was a price margin, indicating that the measures taken by chemical plants in view of losses, such as production reduction and price retention became effective in May.

 

Early this month, the market price of ABS rose to USD1928, while the ex-factory price of Formosa Plastics increased by USD20 to USD1920. Chi Mei’s price quote levelled at USD1970. Decisions of chemical plants supported the market price. However, as of the middle of the month, the price of ABS rose to a certain extent that demand stagnated. Some traders did not place huge orders to prevent losses. Some ABS with shorter inventory period thus cut their prices to boost sales. Market price thus went down despite being generally stable.

 

However, with the price of ABS going down, supply in the market became tight again. Price quotes of some future brands also decreased. The market stagnated and contributed to the stability of ABS in May.

 

GPPS

 

Figure 5: The Comparison of spot price and cost in a GPPS market (Mar-May 2014)

 

Price difference about USD60

 

Price difference about USD80

 

Source: HK Traders

 

The cost of GPPS in the graph is SM (Styrene) +US$120. It hasn’t included expenses like terminal handling charges.

 

Table 5: GPPS fluctuation (Apr – May 2014)

 

 

In early May, the market price of GPPS was higher than its production cost by USD80. At the end of the month, the difference was decreased to USD60. This was mainly because its production cost, the price of SM, remained at around USD1560. With weaker market demand, market price went down slightly and contributed to such lessened difference. 

 

In the price quotes closest to May, chemical plants received GPPS price quotes from Formosa Plastics and Chi Mei at USD1740 and USD1820 respectively. There were rises and falls. Most agents placed orders cautiously in view of market conditions, which limited the stock available in the market. 

 

In mid and late of the month, Chi Mei continued to adjust its ex-factory price stably. Traders remained cautious. Stock became scarce at the end of the month. Generally speaking, the market price fluctuated slightly in view of balanced supply and demand. 

 

PP

 

Figure 6: The Comparison of spot price and cost in a PP market (Mar-May 2014)

 

PP went up stably in May

 

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.

 

Table 6: HOMO PP fluctuation (Apr – May 2014)

 

 

 

 

 In May, PP on spot was scarce and futures and orders were popular in the market. Goods arrived were mostly for orders placed earlier. Market price thus went up stably with limited supply. 

 

Due to good local demand, goods from Saudi Arabia to South China became fewer. Some chemical plants in Taiwan had limited production capacity or tight schedule while shipments of some goods delayed. These intensified the tight PP supply on spot. 

 

In view of a higher ex-factory price, traders placed orders conservatively. Downstream factories made orders in response to existing order demands. Therefore, market price did not surge and it had been going up slowly throughout the whole May. 

 

Plastic Market Forecast in June 2014

 

Global economy——Going slowly but steadily

 

Changes in the economic environment affect the vitality of consumer market and thus direct the developmental trend of the manufacturing industry. Referring to the latest economic statistics published, it is expected that the macroeconomic environment would develop stably and slowly.

 

China —— Stable development

 

The National Bureau of Statistics of China announced the May manufacturing PMI at 50.8, which was 0.4% higher than the value in April and had been rising for 3 months consecutively. The final value of HSBC manufacturing PMI was 49.4, highest in 4 months. Apart from this, statistics from both the Bureau and HSBC showed that new exports orders grew in May, indicating that manufacturing activities may accelerate further. The overall market economy continues to develop stably.

 

The US ——Monetary policy remains undecided

 

US Federal Reserve published its meeting minutes on 22 May, showing that officials began to discuss the withdrawal of super quantitative easing monetary policy. Although how and when to lessen the scale of balance sheet are left undecided, schemes concerning raising short-term interest rates were suggested. Currently, the US Federal Reserve benchmark interest rate is as low as 0-0.25%. Once the US Federal Reserve changes its policy, the global economy will be affected.

 

Europe ——Economic sentiment index rose slightly

 

The economic sentiment index of the Eurozone in May rose to a three-year high at 102.7, indicating that consumers are more believed in the improvements in the future economy and employment. Statistics somehow stated that corporate worries on the Ukraine crisis had weakened.

 

 

 

 

 

 

 

 

 

 

 

Plastic raw materials market——Slight adjustments

 

ABS

 

June is still the peak season for traditional industries. Some toys customers currently manufacture for orders in Christmas. Injection molding processes are scheduled to July-August, while September will be for assembling, packaging and shipping arrangements. Some customers made orders for materials to be used in June in May. In terms of demand for ABS, the order volume is expected to be comparable to the amount in May. The demand may be slightly worse than that of May due to smaller purchases of current stock.

 

Small household appliances industries made seasonal production arrangements. Some customers stated that the peak production season of winter series, such as fan heaters, began in April. Materials to be used are expected to be stable in June. In July and August, transseasonal products such as fans will be manufactured. By that time demand could change.

 

Most large factories reflected that their production orders in June is full. However, some small and medium electronic and toy factories reflect that their current orders are 30% fewer than the same period last year mainly because of rising labour costs. Apart from injection molding materials, prices of other materials required for coloring and injection processes also rise. These contracted the profit margins of products and enterprises thus dare not receive orders in bulk.

 

Chemical plants prefer the price to remain unchanged and do not want to cut the price for sale. Most agents believe that the price of ABS is still high. Market demand and the absense of other factors increasing the price make them make purchases conservatively.

 

 In May, with replenshiments of some goods of short positions, prices varied in the ABS market. Some traders thus became pessimistic about the market and did not make purchases in bulk. It is expected that the stock on spot in June could neither be abundant. The market price could become stable again after minor adjustments.

 

PS

 

Tableware and CD cassettes industries use GPPS as their materials. Most customers manufacturing plastic forks and knives indicated that their orders in June are stable. However, as GPPS available on spot was not as abundant as before, advanced orders are generally preferred. Orders received by the CD cassette industry are balanced throughout the year. However, with Taiwanese GPPS do not enjoy a large price advantage, clients face a large cost pressure on their product with small profit margins. This may thus make upstream clients to take orders cautiously.

 

Electronics accessories such as radio cases consume HIPS. Most clients state that orders are balanced throughout the year. In June, the strategy of purchase-as-use will be maintained. Currently, the price of HIPS is now very advantageous. Some toy customers will prefer ABS in view of product quality when the prices of HIPS and ABS are comparable. PP will be used if they consider cost reduction. In general, the demand for HIPS contracted.

 

Although the demand for HIPS contracted, certified regenerative HIPS black tablets that conform to level requirements are gradually accepted by some industries, such as some hanger factories. Enterprises endeavoured to raise their capacity of taking orders in market competition by excelling themselves.

 

In general, PS rose to a certain extent in March and April. The rise can hardly sustain. It is expected that the price of PS will be stable in June with small demand and limited stock.

 

 

 

 

 

 

 

PP

 

 PP on spot was tight in May. Most toy and household goods clients would make advanced purchases of PP in June according to the amount stated in orders. Some household goods clients stated that some products, such as the types of colouring powder and processing, are simple. They can change materials in a simple way and seek cheaper Samsung and Indian PP for production.

 

DVD cassettes clients use more PP. Some clients reflect that both the amount of PP available in the market and brand options are not enough in the market, such as high water-proof PP. Clients use products from Taiwan and Saudi Arabia more before. However, as shipments from these two places could not be well made recently and Taiwanese goods are more expensive, Korean products become advantageous and top clients’ choice after successful trials.

 

For clients’ demands, PP is generally level with last month in June. Chemical plants also make arrangements according to the amount of orders received. It is possible that some orders received earlier are larger and require longer arrangements, thus causing some subsequent outputs to delay and insufficient stock. With goods of expected amount delivered to clients in May, stock circulating in the market is rare. In June, the price of PP could remain stable or go up slowly.

 

Prospects—Limited stock but stable prices

 

Prices of plastic raw materials ABS and PS could go down slightly in early June. However, with insufficient stock on spot, market price could hardly fall much. PP of some brands may stop price quotes when chemical plants fail to make production arrangements in time. Orders may not be made correspondingly as well. Customers are suggested to make appropriate replenishments according to existing orders and supplies.

 

Appendix-Major Events

 

8 May 2014                       Oil inventory in Cushing fell to a five-year low. US oil rose by more than 1% to USD100.77.

 

 

 

19 May 2014                       5 light cracking plants in Taiwan, the mainland and Japan, which involved 3 million tonnes of Ethylene, began annual overhauls.

 

 

 

23 May 2014                       The Styrene (SM) monomer of Orient Petrochemical of Singapore which produces 550,000 tonnes of SM annually suffered failures. Also, as the prices of its material Ethylene and Benzene fell, the profit margin of Styrene increased.

 

 

 

～The End～

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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