Market Reports

Excess demand

2014-06

 

Plastic Monthly (No.47)

Excess demand

Author:Kim1Lin-Marketing Department Date collection: Rita Rong– Marketing Department Website: www.sunta.hk

Date: 3 Jul 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

目錄    

Plastic Market in June. 2

International Oil Price (WTI)——Record high. 2

Upstream monomers——Leaping forward. 3

Plastic raw materials market—— Excess demand. 6

Plastic Market Forecast in July 2014. 10

Global economy——Mixed. 10

Plastic raw materials market——Tight supply and rising prices. 13

ABS. 14

PS. 15

PP.. 16

Prospects—Orders preferred. 17

Appendix-Major Events. 17

 

 

 

Plastic Market in June

International Oil Price (WTI)——Record high

Figure 1: International Oil Price (Apr-Jun 2014)

 

Source: NYMEX

Table 1: WTI fluctuation (May – Jun 2014)

 

WTI in June maintained a climbing trend like last month amidst tensions in Iraq and the nuclear negotiations between Western countries and Iran. In late June, it reached a 9-month high at USD107.26.

Being the second largest oil production country of the Organization of the Petroleum Exporting Countries (OPEC) after Saudi Arabia and also the 7^th largest oil production country in the world, Iraq’s second largest city Mosul was fully invaded by anti-government military forces on 10 June. With domestic conflicts heated up, oil price was stimulated.

The Iranian issue was also concerned by the market. In late June, the five major countries held the 5^th meeting with Iran in Vienna regarding the nuclear issue. However, there were still drastic differences among the attitudes towards Iran’s treatment of Uranium enrichment.

Although tensions in Iran had yet affected oil exports, President Obama stated that the US Army was not willing to return to Iraq. Western countries agreed to the principle that allowing Iran’s oil exports to Asia, communicated actively and aimed at a comprehensive resolution before the final deadline on 20 July to end the economic sanctions against Iran. Oil production is now less likely to the impacted. Therefore, WTI fell slightly after surging in June.

Upstream monomers——Leaping forward

Figure 2: Upstream monomers SM&C3 (Apr-Jun 2014)

 

Source: Chem99

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

In June, the price of Styrene (SM) went up despite fluctuations. Downstream utilization rate affected the demand for Styrene more. In early May, the utilization rate of major downstream EPS (expanded polystyrene board) in Asia was about 60%. It fell to 55% in early June, bringing down the price of Styrene early this month slightly.

In Mid-June, there was an explosion of Shell’s Styrene device in Ellba, the Netherlands. As Shell had not announced the reopening of the device, Styrene exported to the US from Europe decreased. The US increased SM imported from Asia to fill up the supply gap and thus greatly increased the price of Styrene imported from Asia.

Let’s trace back pure Benzene, the major material of Styrene. The price of Benzene rose substantially by USD80, or 6.4%. Tight supply contributed to its continuous rise. Overhauls of cracking devices in Korea, Japan and Singapore are being conducted, affecting a total production of 2.09 million tonnes annually. Moreover, the third device of Mitsui Chemicals in Chiba was utilized at 50%. Rising price of Benzene drove up the price of Styrene so that the letter rose by 0.2% in June.

Propylene (C3) was stable in June. Its demand is still key to its trend. As downstream plastic material PP continued to rise slightly, chemical plants could better cope with the price of Propylene rise with increasing profits. Propylene enterprises thus wanted to increase their prices.

Referring to the statistics in recent three years, Propylene’s 2012 average was US1304/MT, 2013 average was USD1338/MT, and the 2014 average from the beginning of the year till now was USD1375/MT. As the current price was at a high level in recent three years, it is difficult for Propylene to continue to rise.

Cracking naphtha with steam is the major way to obtain Propylene. However, thanks to the large-scale extraction of shale gas, cracking enterprises turn to cheaper and lighter materials. Together with lowering the production cost of Ethylene, the supply of its by-product Propylene also reduced. Lowering inventory in cracking plants supported the price of Propylene well.

 

 

 

Figure 3: Upstream monomers AN&BD (Apr-Jun 2014)

 

Source: Chem99

Table 3: Upstream monomers AN&BD (May-Jun 2014)

In June, the price of Acrylonitrile (AN) rose in stability due to cost support and downstream demand. At the moment, the price of its material Propylene is at its highest in 3 years. Its average in June 2012 was USD1205/MT, its average in June 2013 was USD1311/MT while its average in June this year is USD1361. This increasing cost supported the price of Acrylonitrile.

For downstream demand, the utilization rate of Acrylic fibre enterprises in June was about 80%. The price of ABS on spot went up steadily. Also, although Acrylonitrile cracking plants in Asia did not have overhauls due to accidents in June, there was no increase in production as well. With stable supply, downstream demand also supported the increasing price of Acrylonitrile.

Butadiene (BD) is the major material manufacturing synthetic rubber, which is widely applied to tire products. Referring to tire exports statistics, tires in China are mainly exported to the US and the EU from Jan to Apr 2014. The export volume grew 11.1% comparing with the same period last year. The reason is that many major economic statistics have improved in European countries and the US. Economic recovery boosted consumption demand and thus tire exports.

Currently, natural rubber production was at its slack season as natural rubber is explicitly seasonal. Although rubber is collected bit by bit every March and April in tropical regions, new plastics will only be put on sale on large scale after July. September and October is the peak production season of natural rubber in most regions in Southeast Asia. Therefore, small supply of natural rubber also elevated the demand for synthetic rubber and drove up the price of Butadiene in June.

Plastic raw materials market—— Excess demand

ABS           

Figure 4: The Comparison of spot price and cost in an ABS market (Apr – Jun 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.

 

Table 4: ABS fluctuation (May – Jun 2014)

 

ABS market went up steadily in June. At the beginning of the month, WTI remained around USD102. Upstream monomers remained weak at different extents and the cost of ABS decreased. Due to Tuen Ng Festival holiday in China, downstream demand turned weak and there was a stalemate of the market price of some ABS brands.

After the Tuen Ng Festival, WTI rose bit by bit to USD106. Monomer material Styrene rose fifth in a row and greatly increased the cost of ABS. At that time, some Taiwanese chemical plants adjusted their sale strategies by adjusting shipping costs. Price quotes of some brands arrived suspended and market tension slowly grows.

With stocks on spot becoming short, there is news that Taiwanese chemical plants suffered poor delivery. The unexpected event is that the ship was overloaded and overturned, leading to delays. Uncontrollable factors intensified market tensions. As the price of downstream monomer Styrene rose substantially again, chemical plants adjusted ex-factory prices one by one and this sturdy attitude directed the rise in the market. The price of ABS rose steadily in June due to short supply.

GPPS

Figure 5: The Comparison of spot price and cost in a GPPS market (Apr-Jun 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

Table 5: GPPS fluctuation (May– Jun 2014)

In June, GPPS was largely affected by the prices of monomers. The substantial increase in monomer Styrene raised the cost of GPPS as well as the ex-factory price of chemical plants. However, at the same time, weak downstream demand hindered the price too. 

WTI reached new highs since mid-June. Major GPPS upstream monomer Styrene performed outstandingly and its price had once increased 5 in a row by USD42 cumulatively. At the end of the month, it rose 4 times in a row by USD45 cumulatively. These 2 substantial increases pushed the ex-factory price of chemical plants ahead.

However when the price of GPPS rose to a certain extent, downstream demand would be pressurized. This is because some products manufactured in GPPS at the moment had a low value and high costs will pressurize some customers. Therefore, after the market price of GPPS rose, it would be stabilized, forming a trend of rising and stabilization. 

PP

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

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

The supply of PP was tight in June. Its market price continued to go up steadily. One brand of HOMO PP rose 1.7% than the price in May. 

After the ex-factory prices were increased for several times by the chemical plants, traders would make purchases according to clients’ demands. The overall supply of the USD market decreased. Also, as market demand varied, chemical plants would export more to regions with better demands. Goods to South China could decrease. 

In the past, goods from Saudi Arabia often hit the PP price in the USD market due to price advantage. However, due to small import from there recently and malfunctions in C2 cracking plants there in April, C3 production was directly affected. To the Middle East where there are not many cracking plants, decrease in monomer production affects the production of PP plants. Long shipments and smaller goods arrival further increased the tensions in the USD PP spot market. 

At the end of the month, some Korean chemical plants stated that given more orders received previously, limited production deprived timely delivery of some orders. The supply of some brands in new orders is thus suspended. The price of PP in the spot market thus rises due to limited supply. 

Plastic Market Forecast in July 2014

Global economy——Mixed

The economic statistics of major global economies performed differently in June. Referring to the manufacturing indexes in the past 6 months, although China continued to experience a growth, the rate remained around the dividing line at 50. The growth of the American manufacturing industry also diminished, but still maintained at about 54, indicating that economic growth is still strong. As for the Eurozone, although the average value of the zone maintained at around 53, the growth is declining for sure. As a whole, the performance of global economy is mixed.

 

 

 

 

 

 

 

 

China- Encouraging rise

Figure 7: China official and HSBC PMI (Jan – Jun 2014)

 

Source: Xinhua08

＊Official PMI- Jointly published by China Federation of Logistics & Purchasing and the National Bureau of Statistics

＊HSBC PMI- Published by HSBC

China’s official (Purchasing Managers Index) PMI rose from 50.8 last month to 51 for 4 months consecutively and reached the highest in the year. HSBC PMI rose from 49.4 in last month to 50.7 in June, reaching the highest in 7 months.

A PMI above the dividing line at 50 indicates that economic accelerates and the manufacturing industry expands. Statistics shows that the Chinese government’s previous stimulating policies, such as increasing the control of the value of RMB to USD and helping SMEs in financing, are coming into effect. Good economic statistics means that China experiences a stable economic growth.

 

 

 

The US- Stability comes first

Figure 8: ISM & Markit PMI (Jan - Jun 2014)

 

Source: Xinhua08

＊ISM PMI- Published by the US Institute for Supply Management

＊Markit PMI- Published by Markit Financial Information Services

Statistics published by the US Institute for Supply Management (ISM) indicated that the US ISM PMI in June was 55.3. Although the growth is smaller than that in May, the value has been above the dividing line at 50 for 13 months consecutively.

The report of Markit Financial Information Services indicated that the final value of Market Manufacturing PMI rose to the highest since May 2010 at 57.3. Also, the New Orders Index also rose from 58.8 to 61.2, the highest since April 2014. Growing new orders implies that the labour market is more thriving and the development of the manufacturing industry is optimistic.

 

 

 

 

 

 

 

Europe- Mild worries hidden

Figure 9: Composite Eurozone PMI (Jan – Jun 2014)

 

Source: Xinhua08

The final Composite Eurozone PMI of the Eurozone was 51.8, falling consecutively for 2 months and marking the lowest in 7 months. This shows that the economic recovery of the Eurozone is still mild.

Among major member states, the PMI values of Germany and France had slipped to different extents. However, the economic growth of the Eurozone might accelerate in the coming months. The European Central Bank President stated that commercial banks in Europe can get unlimited liquidity support from the European Central Bank at the end of 2016. The recent stimulating policies of the European Central Bank could revitalize the Zone’s economic growth.

Plastic raw materials market——Tight supply and rising prices

July marks the entry to the third quarter. Most traditional manufacturing industries are in their peak production seasons. The price of plastic materials may very likely follow upstream monomers, downstream demand fluctuations and the ex-factory prices set by chemical plants.

ABS

The traditional toy industry used a lot of ABS materials. Some large factories stated that the use of plastic materials had increased comparing with last year since the peak season in May. Also, orders received in April were scheduled to September. Packaging and subsequent delivery arrangements could keep them busy until October.

Even if the peak season has passed, clients had arranged production for considerable orders and developed new customers. Orders received are for anti-season products. Currently, there are orders for injection molding plastic swimming products for winter production and delivery.

Apart from the tradtional toy industry, some infant product industries are also very busy. Most clients reflected that there are more orders from June to October. Currently, fewer children are raised in families with the average consumption capacity of families improved. Consumers demand more for product quality. As enterprises receive stable orders, the demand in July is optimistic.

The orders for household products and electrical appliances are balanced throughout the year. Some clients reflected that it is difficult to find ABS on spot in the June USD market. If conditions are fulfilled, they allow goods from the RMB market where tax rebates are available. As a whole, the demand in July remains stable.

Downstream demand remains stable and rises at times. As for ABS monomers, upstream materials Styrene, Acrylonitrile and Butadiene rose to different extents in June. To most chemical plants purchasing plastics materials on their own, they face increasing costs. If they cut production to control the price, the processing costs will still be higher than before reduction. In the price quotes closest to July by chemical plants of Chi Mei and Formosa Plastics, a rise of USD10-20 were discovered. The ex-factory price of chemical plants can hardly fall before early July.

Boosted by a steady attitude of chemical plants, most traders would not rush to sell. Also, the new sales strategy of Formosa Plastics stated clearly that agents cannot sell factory quotes to traders. With fewer available quotes in the market and demand, ABS on spot could rise slightly and maintain at a high level in July.

PS

Hanger industries use both GPPS and HIPS. Some hangers clients had consulted the supply and price of PS materials in mid-July to mid-August. Currently, given different extents of increase in China’s wages and welfare, clients will use relatively cheaper PP from India as substitutes in production that also meets quality requirements to keep the profit margin.

DVD/CD cassettes have a long history. However, when smart products become popular, most clients complained their survival space shrinks. The demand turns weak in late June and early July. To raise their competitiveness and larger survival space, some clients adjust production ratios of their products appropriately, such as using 60% materials for cases and 40% for stationery. Transparent PP and GPPS are more often used in DVD cassettes and stationery, while GPPS is used for CD cassette products. Most enterprises reflect that the demand in July is comparable with the one in June.

There are also some smaller and relatively less costly disposable plastic knives and forks which will apply GPPS materials. Some clients reflect that the July demand is better than the June demand as besides manufacturing plastic knives and forks for daily consumption, orders for large festivals and parties also contribute considerably to orders. They are optimistic about the orders in July.

In general, most clients did not report a rising demand for PS. With higher GPPS costs at the moment, the absence of demand breakthroughs could make chemical plants give instructions to the ex-factory price of SM. After the heated rise in June, the market needs time to consume the rise of SM. It is very likely that the price remains stable or even fells slightly. If SM falls, GPPS could fall as well. However, with reference to the small fluctuation of GPPS market demand for a long time, traders could continue to be conservative in placing orders. With limited stock, the price of GPPS could be stable in July.

PP

The market price of PP is clearly restrained by supply since the second quarter this year. ABS and PP, are used by most household product and toy customers. With supply of PP continues to be tight, clients often face mismatch of delivery. Cooperation stopped at supply level before coming to the factor of price.

Some toy clients exporting to Europe, the US and Japan stated that orders in the traditional peak season are more than those of last year, and most orders are long orders taking half a year. In the coming July, the demand for plastic raw materials would be higher than that in June. However, clients are also worried that some goods might experience a mismatch in production and delivery.

Some clients have been using Saudi Arabian goods for production. Having realized that these products could experience delays, if more unstable deliveries as Taiwanese and Korean PP, clients begin to reserve more time for ordering period after materials failed to catch up with production for several times.

Delays in shipments and absence of some models in chemical plants are due to failure in catching up with production schedule with limited production capacity. For example, in Korea, there are chemical plants failing to deliver all bulky orders. They have to extend their production schedule. With new orders continue to come, they will take fewer orders or delay the production for new orders slightly.

With supply of Korean PP decreasing, chemical plants in Taiwan also have overhauls, leading to production suspension of some brands. Formosa Plastics planned to have a 30-day overhaul for a production line manufacturing Copolymer PP from 21 July to 20 August. It is expected that the PP supply in the market would continue to be tight in July.

The price of PP monomer C3 had reached a three-year high. Even if it turns stable or fells slightly in future, the cost support could last for a certain period. It is expected that the PP spot market in July could have short supply and rising price due to excess demand.

Prospects—Orders preferred

Short supply has been lasting for a long time in terms of the supply of plastic raw materials on spot. When the supply and demand for PS is balanced, its price would not fluctuate much. ABS and PP are very likely to go upward in early July as in late June. Even if the price reached a certain high, the price would remain but stock available on spot will be extremely rare. Making orders in advance are recommended and a longer ordering period should be reserved.

Appendix-Major Events

21 June 2014                     USD107.26。Rebellion in Northern Iraq stimulated WTI to the highest in 9 months at USD107.26.

 

24 June 2014                       The US pure Benzene (FOB US Gulf) had risen by USD126.ton within a week. Affected by the strong American pure Benzene market, Asian Pure Benzene FOB Korea ended up at USD1413.5-1414.5/ton, increasing substantially by 41USD/ton comparing with the last working day.

 

 

～The End

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