Market Reports

Downward Trend for The Plastic Market Along With The Weakened Economy

2012-05

 

 

By Ben Hui, Jessie Chang, Marketing Department of Sunta Chemical Ltd. June 4, 2012 www.sunta.hk     www.sunta.hk

MAY plastic monthly report in 2012

Downward Trend for The Plastic Market Along With The Weakened Economy

NO. 27

Table of Contents

Review of Plastic Market in May-. 2

Downward Trend Along With The Weakened Economy. 2

International Oil Price (WTI) – Plummeted. 2

Upstream Monomers – Significant Downward Adjustment. 3

Downward Movement for The Plastic Market as AWhole. 4

Summary of Plastic Market in May. 9

Forecast in June – Gradually Stabilized, Cautious for Rebound. 10

International Oil Price – Volatile. 10

Upstream Monomers – Decrease in Price Narrowed Down. 11

Forecast in June – Gradually Stabilized, Cautious for Rebound. 11

Suggestions. 12

Appendix 1 – Special Topic in May – Export Rebate. 13

Appendix 2 – Major Plastic Events. 16

 

 

Review of Plastic Market in May-

Downward Trend Along With TheWeakened Economy

With the worry of the global economic prospect, the international oil price plummeted. The upstream monomer tumbled. The downstream demand was reduced significantly. The plastic market plummeted.

International Oil Price (WTI) – Plummeted

Figure 1: WTI (March-May 2012)

 

Data from:NYMEX

 

In April, the international oil price was corrected mildly. However, the price plummeted in May. The Europe debt crisis has led to volatility in the political environment in Europe. Greece failed to form the new government after the election. The market worried about whether Greece can stay in the euro zone. In addition, another euro zone member Spain was reported to enter the recession stage.

 

Apart from the euro zone, the growth of China’s economy was slowed down. The economic figure in US was not good as well. These incidents have damaged the confidence of the investors. The international oil price plummeted, from the peak at USD 106 / barrel to USD 88 / barrel, with monthly decrease of 17.3% (see Figure 1).

 

Table 1: Volatility Scale of  InternationalOil Price

 

 

Figure 2: WTI (2008-2012)

 

Data from：NYMEX

 

In the last 3 years, the international oil price plummeted in May. The scale was the most significant in 2010. It was followed by 2012, when there was 8% decrease in price. It was caused by the market panic about the Europe debt crisis( seeTable 1, Figure 2).

Upstream Monomers – Significant Downward Adjustment

 

Figure3 : Upstream monomer (March – May 2012)

 

Data from：Chem99

 

Data from：Chem99

 

The plunge of international oil price led to the falling of the price of the upstream monomer. Butadiene (BD, 15% by weight of ABS) dropped most significantly by 21%. Another major ingredient of ABS, styrene (SM, 60% by weight of ABS), dropped 12%. Acrylonitrile (AN, 25% by weight of ABS) also dropped 10%. The raw material of PP, propylene (C3) dropped 15.5% ( see Figure3).

Downward Movement for ThePlastic Market as AWhole

PS

 

Figure 4: Spot Price and Production Cost of One GPPS (March – May 2012)

 

 

Data from : Hong Kong Traders

 

PS has dropped since the middle of April. The decrease in price was sped up in May. The second half of April saw 1.2% decrease in price, while May saw 6.2% decrease.

 

The decrease in price of the upstream monomer SM was even more than PS. The production cost of PS started to fall below the market price. In the end of May, the market price of GPPS was USD 64 / ton above the production cost. Such difference has allowed the chemical plants to offer some adjustment in price (see Figure 4).

 

Table 2: Volatility Scale of TheMarket Price of GPPS

 

	2012	May 2009 vs May 2008	May 2010 vs May 2009	May 2011 vs May 2010	May 2012 vs May 2011
	May vs April
GPPS	↓2.9%	↓38.72%	↑42.51%	↑15.63%	↓4.19%

 

Figure 5: Spot Price of One GPPS, Showing The Price Trend in May (2008-2012)

 

Data from: Hong Kong Traders

 

In the last 3 years, the price trend of PS was similar to that of the international oil price, showing downward movement. The average price in May was highest in 2011, followed by 2012. The average price in 2012 was 4.19% lower than the average price in 2011 (see Table 2, Figure 5)

 

ABS

Figure 6: Spot Price and Production Cost of One ABS (March – May 2012)

 

Data from: Hong Kong Traders

 

The price of ABS has decreased since the middle of April. The rate of decrease was similar in April and in May. It showed 8.3% decrease in price in May. The average price in May was 7% lower than that in April.

 

Due to the plunge of the raw materials of ABS, the production cost of ABS plummeted. In the end of May, the production cost was similar to the market price. To the ABS plants, there was still no profit at all (see Figure 6).

 

Table 3: Volatility Scale of TheMarket Price of ABS

	2012	May 2009 vs May 2008	May 2010 vs May 2009	May 2011 vs May 2010	May 2012 vs May 2011
	May vs April
ABS	↓7%	↓31.03%	↑50.58%	↑11.7%	↓15.49%

 

Figure 7: Spot Price of One ABS, Showing the price trend in May (2008-2012)

 

Data from: Hong Kong Traders

 

The price of ABS dropped in May in the last 3 years. However, the pattern was different from PS. For the average price of ABS in May, it was lowest in 2012, followed by 2010 and 2011.

 

For the average price, the pattern was also different from PS. The average price in May of 2012 was 7% lower than the price in April. Overall, the price in May 2012 was 15.49% lower than the price in May 2011( seeTable 3, Figure 7).

PP

Figure 8: Spot Price and Production Cost of One Homo PP (March – May 2012)

 

 

Data from: Hong Kong Traders

 

As the price of upstream propylene plunged, the spot price of PP accelerated the downward trend in May. The price of PP dropped 2.9% in the second half of April. And it dropped 8.1% in May.

 

The price of propylene dropped 15.5% in May, with magnitude higher than that of PP. Since the middle of May, the spot price of PP has been higher than the production cost, and moved back to reasonable region( seeFigure 8).

 

 

Table 4: Volatility Scale of TheMarket Price of Homo PP

 

	2012	May 2009 vs May 2008	May 2010 vs May 2009	May 2011 vs May 2010	May 2012 vs May 2011
	May vs April
HOMO PP	↓4.8%	↓33.91%	↑22.99%	↑22.21%	↓13.05%

 

 

 

Figure 9: Spot Price of One PP, Showing ThePrice Trend in May (2008-2012)

 

Data from: Hong Kong Traders

 

The price trend of Homo PP in the last 3 years was similar to that of PS. However, the magnitude, in terms of May 2012 as compared to April 2012, or in terms of May 2012 as compared to May 2011, were more significant for Homo PP than for PS (see Table 4, Figure 9).

Summary of Plastic Market in May

Due to the deepening Europe debt crisis, slowdown of economic recovery in US and the reducing GDP growth rate in the first quarter in China, the international oil price moved downward. The international oil price plunged in May in the last 3 years, driving the price of monomer and plastic downward.

 

As the market outlook was uncertain, the traders tried to sell as much stock as possible to keep their inventory in low level. The downstream manufacturers maintained their wait and see attitude.

 

Although the pressure of production cost has been reduced, the sales turnover was sharply reduced. The chemical plants can only reduce their output or arrange maintenance work earlier.

 

Since the middle of April, the plastic price has kept the downward trend. The downward trend was sped up in May. In the end of the month, the spot inventory in the market was in relatively low level. Some models were shortage in the spot market.

Forecast in June – Gradually Stabilized, Cautious for Rebound

The plastic prices reached the peak in the middle of April, and then moved downward. The downward trend was sped up in May along with the plunging international oil price. The trend has been maintained for one and a half months. The bottom could be established more easily with the plunge. There would be higher chance for rebound.

International Oil Price – Volatile

After the plunge of international oil price in May, the decrease has been narrowed down. Would the price be stabilized or even rebounded?

 

The downward risk would remain in the market. The deepening Europe debt crisis has been triggering the political volatility. In 17 June, there would be a new election in Greece. This election is likely to decide whether Greece would stay in the euro zone or not. If Greece exited the euro zone, there would be large volatility in the global economy and strong downward pressure for the oil price.

 

Moreover, we should also concern about the economic data in US and China. If the economic recovery is slowdown, it is hard to support the international oil price.

 

However, there are some forces to support the rebound of international oil price. There would be the third round of negotiation between Iran and the Six Nations in 18-19 June. The result of the negotiation could affect the trend of the oil price. Under the current circumstances, if there is no concession by Iran, the tension with the West could be tightened again. The international oil price could be rebounded again.

 

In addition, the attitude of OPEC cannot be neglected. If the oil price keeps dropping, the supply side would not keep silent.

Upstream Monomers – Decrease in Price Narrowed Down

The chance of further plunging of the international oil price remains there, even it is being reduced. The drop in price of the upstream monomer was narrowed down along with the international oil price. In addition, in order to tackle the long decrease in upstream monomer cost, the monomer manufacturers have started to reduce the production rate or prepare to start the maintenance work earlier. For example, YNCC Korea reduced the production rate of the cracking facilities from full loading to 90%. CPC Taiwan and Formosa Taiwan plan to start the maintenance work earlier. This could reduce the ethylene production by 1.28 million tones, consisted of 31.4% of the total ethylene capacity in Taiwan.

 

The reduction in monomer output could limit the downward magnitude of upstream monomer price.

Forecast in June – Gradually Stabilized, Cautious for Rebound

There would be less pressure for further dropping of international oil price. The exit of Greece from the euro zone could be the uncertainty, but the chance becomes less now. As the international oil price becomes stabilized, the reduction of upstream monomer price would be narrowed down.

 

The chemical plants have been reducing the production rate to reduce the supply. This could limit the reduction rate of plastic price.

 

The plastic market has seen large decrease in price for one and a half months. The spot inventory would be limited. There would be basis for sharp rebound.

 

It would be a traditionally strong season in June. Market demand would be improved for the Christmas orders. In addition, Chinese economy has been stabilized. There were new monetary and fiscal policies in May to stimulate the market. We would see if the demand in June would be better than May.

 

From the above factors, we believe the plunge of plastic market would be slowly ended. As the inventory from the chemical plants would be digested, the chance for market rebound would be higher and higher.

Suggestions

As the downward movement is deeper and longer, the chance for rebound would be higher. Due to the market uncertainty, the downstream factories would try to maintain the inventory at low or very low level. The risk for supply stability is increasing. When there is profit, we suggest to keep safety inventory level to ensure uninterrupted production.

 

The price in May could be in the relatively low level in the whole year. There could be very high chance for rebound in the future. When customers start to talk about new orders, please take our historic data as reference.

Appendix 1 – Special Topic in May –Export Rebate

 

In order to encourage export, China has set up export rebate policy, which has become the monitoring tool to fine tune the export structure dynamically.

The export rebate is applied to goods which are exported by production enterprises either directly or on consignment through foreign trade companies. The higher rate of export rebates will lower the cost of enterprise.

For manufacturer , the major tax item involved in export rebates is Value Added Tax.

As for the calculation method of export rebate , please refer to the guidance of Chinese Customs.

 

The process of application for export rebate

 

Treasury

      9．To take income refund notice                                      

 

The Government in charge of export rebate

10. To take the refundabletaxes

Bank

 

8.Application for export rebate                                                              

             

 

2. General Taxpayer qualified

Tax Bureau

MOFTEC

                                                   

 

1.To obtain the authority

Manufacturer

                                            

 

of import and export

4.Tax returns filing

 

 

6.verifying and writing-off instrument

                                                                                 

 

Customs

3. Export entry

5. To get the bill of entry

Administration of Exchange Control

           

7.to get verifying and

writing-off instrument                                     

 

Remark: For more information ,please refer to the guide published by Chinese Customs.

 

Part of Rate of Export Rebate

Source From: www.taxrefund.com.cn

 

Appendix 2 – Major Plastic Events

5 May 2012

The employment rate in US was weaker than expected. WTI dropped below USD 100 / barrel.

 

15 May 2012

The formation of new government in Greece failed. The political uncertainty drove WTI below USD 95 /barrel.

 

31 May 2012

Spain was downgraded two days ago. Market worry to euro zone stability was increased. WTI dropped to seven-month low.

 

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