2012-06
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No. 28 |
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By Ben Hui, Jessie Chang, MarketingDepartment of Sunta Chemical Ltd. July 17, 2012 www.sunta.hk
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Rebound for the Plastic Market
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JUNE PLASTIC MONTHLY REPORT IN 2012 |
Table of Contents
Rebound for The Plastic Market 2
International Oil Price (WTI) – The Decrease Was Narrowed Down. 2
Upstream Monomers – Rebound. 3
Summary of Plastic Market in June. 6
Forecast in July – Attempt to Move Upward. 7
International Oil Price – Volatile With Attempt to Move Upward. 7
Upstream Monomers – Attempt to Rebound. 8
Forecast in July – Attempt to Move Upward. 9
Suggestions. 11
Appendix 1 – Special Topic. 12
Attention for Procurement of Plastic Resins in RMB.. 12
Appendix 2 – Major Plastic Events. 15
Rebound for ThePlastic Market
The plastic market was stabilized as a result of stable international oil price. The spot supply of plastic resins was limited due to the abnormal weather and accidents in the chemical plants. The plastic price was rebounded.
International Oil Price (WTI) – The Decrease Was Narrowed Down
Figure 1：International Oil Price (WTI)（April-June 2012）
Data from：NYMEX
Since June, the international oil price has ended the downward trend. In the first half of June, the oil price seemed to be stabilized and vibrated around US$83.83 / barrel. However, due to the poor economic data from US and China, the market was panic and the international oil price moved downward again, and dropped below the psychological barrier of US$80 / barrel, with a single day drop of 4%. The price was then vibrated around US$80, and reached the 8-month low at US$77.69 / barrel on 29 June. With the stimulus from the EU summit on 30 June, the international oil price surged 9.4%, reached US$84.96 / barrel.
On average, the international oil price was down 13% in June.
Upstream Monomers – Rebound
Figure 2：Monomers (SM C3 AN BD)（April- June 2012）
Data from：chem99
Data from：chem99
The prices of the upstream monomers were stabilized as a result of stable international oil price. In addition, major chemical plants reduced the plastic output. The prices of styrene monomer (SM), propylene (C3), butadiene (BD) were rebounded in mid June. On the other hand, the price of acrylonitrile (AN) moved down, even though the magnitude was narrowed down, as a result of optimal supply and weak downstream demand.
PS
Table1：Volatility Scale of The Market Price of GPPS(2011-2012）
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June of 2012vs June of 2011 |
June of 2012 vs May of 2012 |
End of June vs Early of June in 2012 |
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GPPS |
↓3% |
↓4% |
↓1% |
Figure 3：Spot Price and Production Cost of One GPPS（April-June 2012）
Data from : Hong Kong Traders
Since June, the spot market price of PS has been stabilized, ending the 2-month downward trend. The price at the end of June was 1% lower than that in the beginning of June. The average price in June was 4% lower than that in May.
As the price of upstream SM moved down sharply, the spot market price of PS became higher than the production cost of PS. The chemical plants began to have profit. However, the price of the upstream monomer rebounded sharply in the second half of June, resulted in the increase in production cost. The profit for the chemical plants was narrowed down.
ABS
Table 2：Volatility Scale of The Market Price of ABS（2011-2012）
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June of 2012vs June of 2011 |
June of 2012 vs May of 2012 |
End of June vs Early of June in 2012 |
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ABS |
↓12% |
↓2% |
↑1% |
Figure 4：Spot Price and Production Cost of One ABS（April-June 2012）
Data from : Hong Kong Traders
In the first half of June, the price of ABS moved down, although the magnitude was narrowed down due to the short spot supply of ABS. The price of ABS has rebounded rapidly since the middle of June. The price at the end of June was 1% higher than in the beginning of June. The price in June was 2% below the price in May. Meanwhile, the price in June 2012 was 12% lower than that in June 2011.
The production cost of ABS was increased due to the rebound of upstream monomer. The temporary profit of the ABS chemical plants was narrowed down.
PP
Table3：Volatility Scale of The Market Price of HOMO PP（2011-2012）
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June of 2012vs June of 2011 |
June of 2012 vs May of 2012 |
End of June vs Early of June in 2012 |
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HOMO PP |
↓12% |
↓3% |
↑4% |
Figure 5：Spot Price and Production Cost of One HOMO PP（April-June 2012）
Data from : Hong Kong Traders
The price of PP was stabilized in early June, and rebounded rapidly in the middle of June. In the end of June, the price of homo PP was restored to the level in mid May. The price of PP in the end of June was 4% higher than that in the beginning of June. The average price in June was 3% below that in May, yet the magnitude of price reduction was narrowed down sharply.
Summary of Plastic Market in June
As the international oil price was stabilized, the plastic resins have ended the downward movement. On the other hand, due to heavy rain and typhoon, the major chemical plants in Taiwan were temporary shutdown. As a result, the lead time was increased. And the shipment schedules were delayed again and again. On 20 June, the electricity supply failed suddenly in the Formosa plants in Taiwan, half of the production plants there were shutdown. The electricity supply was restored later, yet the full recovery of the production facilities was not yet reached. The incident has affected the production of ABS, PS and PP. Together with the bad weather, the shipment schedules of the plastic resins from Taiwan were very uncertain.
Apart from the chemical plants in Taiwan, the ABS plant of LG in Korea has stopped production for maintenance for 3 weeks. Shipment would be resumed in the end of June or early July.
The bad weather and maintenance work in the chemical plants have tightened the supply. As there was no inventory pressure, the chemical plants increased the ex-factory prices. After the 2-month downward movement for the plastic resins, the spot inventory was maintained at low level. Due to the above factors, the spot price was rebounded.
Forecast in July – Attempt to Move Upward
International Oil Price – Volatile WithAttempt to Move Upward
Even though the trend was still downward, the downward magnitude in June was less than that in May. How about the trend in July?
The global economic prospect remains uncertain. The debt crisis in the euro zone is deepening. The recovery in US remains weak. The economic growth in China is weakening. The demand for crude oil is reduced further.
There is no improvement of tension after several rounds of negotiation between Iran and the Six Nations. Europe would implement tougher sanction against Iran since 1 July. Korea has announced that it would stop importing crude oil from Iran.
The poor economic outlook would drive down the international oil price. On the other hand, the sanction against Iran would limit the oil supply, which in turn would stimulate the oil price upward. Which factor would be more dominant in driving the oil price?
The room for further decrease of oil price would be limited. The relatively high oil price in the first half of the year allowed OPEC to make profit. In order to support the global economic growth, OPEC once announced that they could accept the international oil price to stay below US$90/barrel for several months. Therefore, the current oil price would be accepted by OPEC, without the need to reduce the oil output. However, the international oil price is below US$80/barrel at the moment. It seems this level would not be accepted by OPEC.
The low oil price would favor the current economic recovery and the coming presidential election in US. It would also be good in the key moment of negotiation with Iran. But would Iran soften their stance? The crude oil export is the key revenue for Iran. Iran would suffer from the low oil price. It would be difficult for Iran to accept the low oil price environment.
As the economic outlook is not good, it is likely for most of the nations to implement policy to stimulate the economic growth. This in turn would stimulate the oil price upward.
With the above factors, the international oil price may move upward in July.
Upstream Monomers – Attempt to Rebound
The upward movement of the international oil price led to the increase in production cost of the upstream monomers price, which in turn pushed the spot price upward. The price of upstream monomers has plunged since May due to the plunge in international oil price. Some chemical plants have reduced the output of the monomers, including SM, C3, AN and BD.
Three naphtha cracking units in the Formosa Plastic Group were halted due to failure in electricity supply. On the other hand, CPC Taiwan is expected to shut its No. 4 naphtha cracker for maintenance work on 2 July. After that, only its No. 5 naphtha cracker would be in operation. The total ethylene output in Taiwan would be reduced to 10% only. The upstream monomers ethylene, propylene and butadiene in the Asia region would be affected. This would further push the upstream monomer price upward.
However, the weak downstream demand would limit the upward scale of the price of the upstream monomer.
Forecast in July – Attempt to Move Upward
Based on the situations in June, it seemed that the bottom price of the plastic resins has already been established. Would there be rebound in July?
We could examine the situations based on the following factors.
Production cost: The prices of the upstream monomers have been moving upward since mid June. The prices have been supported by the limited supply due to extensive maintenance work or low output of most of the chemical plants. The production cost of plastic resins would be pushed higher.
Chemical plants: They have been carefully arranged output to control inventory level effectively. Some chemical plants with newly restarted production lines would need to arrange the new production for the pending orders. Their spot supply would be limited. These situations could be observed in the ABS line of LG. Some models would still be in tight supply.
Shipment: Due to the previous bad weather, there was delayed shipment. The coming arrival of containers would be arranged mainly for the previous orders. The tight supply could only be relieved slowly. The coming season would be the peak season for typhoon. Therefore, spontaneous shipment delayed may be repeated again.
Traders: There are some traders with little inventory only. In the upward trend, they would rush to secure the stock. As a result, the market supply would be tight. Moreover, the valuation by the China’s customs in the beginning of each month would affect the supply in Hong Kong. If the valuation is below the market price, along with tight supply in China market, the plastic price would surge and the supply would become tight in Hong Kong.
Downstream demand: The weak economic situation in US, Europe as well as the developing nations including China, have resulted in significant reduction in the export demand. However, it would be the start of the peak season for export. The demand would start to grow up.
To sum up, the plastic prices would keep the rebounding pattern in the coming 1 month due to the increase in production cost of upstream monomers and the tight supply. The plastic traders would increase the purchasing volume to make the profit. The manufacturers would also need to buy the stock for production purpose. Finally, the increase in demand would stimulate the price upward, until the market equilibrium is reached.
Suggestions
Although the downstream demand is not as strong as a year ago, the plastic prices have been pushed up due to increase in production cost and tight supply. On the other hand, some models of plastic would be out of supply due to the occasional bad weather and accidents in the chemical plants. Therefore, we would advise you to cautiously control the inventory, as well as to try alternative models of plastic as backup source to allow more choice and to prevent stock shortage.
Appendix 1 – Special Topic
Attention for Procurement of Plastic Resins in RMB
As the incentive policy for the trade ventures involving processing and assembly with supplied materials, designs and parts with compensation trade comes to the end, some OEM enterprises have gradually adapted themselves to the new environment. The global financial crisis further speeds up the change. One way is to develop the China domestic market. For the domestic business, RMB is used for as the settlement currency. As a result, those factories which used only USD or HKD as the currencies to buy the plastic resins previously now has increased their transaction in RMB.
To those enterprises which are not familiar with the domestic market, which areas do they need to pay attention to for RMB settlement?
According to the requirement by the Chinese government, in the procurement of plastic resins, the suppliers need to provide 17% value added tax (VAT) invoice. There are strict requirements for the format of VAT invoice. For example, if “HIPS 650” was brought, the tax department would regard it as tax fraud if “PS Plastic” was written in the VAT invoice.
The following requirements should be met for VAT invoice
- 1 Descriptions matching the transaction
n (1) Seller information, including name, tax ID and address
n (2) Goods information, including name, specifications, unit, matching the
description in the sales contract.
n Attention: the name of the good should match the name in the customs
handbook. For example, if the item is ABS 757J01, the name “acrylonitrile-butadiene-styrene copolymers” should be written in the “name” section. “757J01” should be written in the specification section.
n (3) Information regarding “Payee”, “Invoice Verified by”, and “Invoice Issuer”
should be complete. And it cannot be the same person for both “Invoice
Verified by” and “Invoice Issuer”
- 2 The printing should be clear, and could not cross the line, or be in wrong location
n The printing should fit inside the box, could not cross the line, especially for
the password area.
- 3 The “Invoice Copy” and the “Credit Copy” should be stamped with “Financial Seal”
or “Invoice Seal”
Legal VAT invoice is the important prove of business transaction. It is the important document for enterprise to credit the tax. In the transaction, apart from the VAT invoice, the buyers should also ensure the plastic resins are in good quality in order to ensure to make qualified products. The buyers could check the plastic bags to verify if the raw materials are fake or not. Below are some suggestions.
Apart from the packing, the resins should be verified by weighing, to ensure it meets the 25KG packing. Careful examination is needed to ensure the product is from the correct manufacturers.
In procurement using RMB, the buyers should ensure the VAT invoice is legal. They also need to have some procedures to identify the fake items. By carrying out these measures, the plastic resins could be used without worry.
Appendix 2 – Major Plastic Events
5 June 2012
SM FOB Korea closed at US$1212-1213, CFR China closed at US$1239-1240, both plunged US$63 / ton. The price level was the lowest since November 3, 2010. Meanwhile, benzene price in Asia market plunged US$89.
18 June 2012
The pro-bailout parties in Greece won the majority of seats in the legislative election. Euro moved upward and the international oil price was stabilized.
20 June 2012
The electricity supply failed in the No. 6 Naphtha Cracker of the Formosa Plastic Group in Taiwan. Half of the production plants there were shutdown. The production of ethylene, propylene and their downstream PP, ABS and PS was affected. The supply of the spot market was further tightened.
22 June 2012
As the economic outlook for China, US and the euro zone nations was negative, along with the abundant supply of crude oil, the international oil price extended the downward movement, and dropped below the psychological barrier of US$80 / barrel.
30 June 2012
There was positive development from the EU summit. The international oil price surged 7%.
