Market Reports

Generally Stable, Downward Slightly

2012-11

Table of Contents   

Plastic Market in November – a recap 2

International Oil Price（WTI）——Downward slightly 2

Upstream Monomers——Some rising, some falling 3

Plastic raw material market——Stably rebound 4

Summary in Nov 6

Forecast in December 8

Plastic raw material market——Short in supply 8

Suggestions 11

Plastic Market in November – a recap

International Oil Price（WTI）——Downward slightly

Figure 1: International Oil Price (Sept 2012 – Nov 2012)

Source: NYMEX

There are 2 major peaks for International Oil Price. In Early Nov, it surged by USD3 to USD88.71/barrel due to hurricane. In late Nov, it surged to USD89.28/barrel as warfare started in Gaza. At the same time, financial condition in the US and Europe looked gloomy. It fell 4.8% to USD84.44/barrel. The average in Nov is USD86.6/barrel, a slight drop of 3.5% from last month.

Upstream Monomers——Some rising, some falling

Figure 2: Upstream monomers (Sept 2012 – Nov 2012)

Source: NYMEX

Source: NYMEX

A highlight of the Nov market is Styrene (SM). Its increases in recent 3 months are chronogically 5%, 3% and 2%. The upward trend maintains though the extent slips, at USD1598/ton in late November, marking the highest since mid-July in 2008. The price of Propylene (C3) in Nov is similar to last month. The month average is USD1286/ton, a 0.9% increase from last month.

Acrylonitrile (AN) falls in Nov, falling by USD224 from last month average USD1883 to USD 1659, making an 11.9% decrease. Butadiene (BD) also falls by USD200/ton to USD1570/ton in November. The month average is USD1664/ton, a 12% fall from last month’s average of USD1897.

Plastic raw material market——Stably rebound

ABS

Figure 3: The comparison of spot price and production cost in an ABS market（2012 Sept - Nov）

Source: Hong Kong 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.

ABS generally remained stable in Nov after decrease. The price of upstream monomer Acrylonitrile and Butadiene drop and reduce its cost. The cost dropped by USD6 throughout the month, while the spot price of ABS in one market dropped by USD17. A price support was formed in late Nov when the market price was close to the cost of USD1900. The price became stable. Throughout the month, ABS fell by USD24/ton from last month.

PS

Figure 4: The comparison of spot price and production cost in a GPPS market（2012 Sept - Nov）

Source: Hong Kong Traders

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

The market price of GPPS remained high in Nov. The monthly price fluctuation in a GPPS spot market was 2.7%, rising by USD31 from last month, making a 1.8% increase. Its production cost fluctuated at high level. The market price is almost identical with production cost at month end at USD1715/ton.

PP

Figure 5: The comparison of spot price and production cost in a HOMO PP market（2012 Sept – Nov）

                  Source: Hong Kong 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.

The PP market in Nov was generally stable. HOMO PP fell slightly in early Nov. The difference with production cost is larger at USD96. Following the slow price decrease of upstream monomer Propylene, the cost fell from the highest USD1453 to USD1415. The market price remained stable around USD1489.

Summary in Nov

International Oil Price

The Nov average of WTI was USD86.60/barrel, an USD3.15, or 3.5% decrease from last month’s average of USD89.75.

The Euro Debt Crisis continued to deepen as the credit rating of France was downgraded. The second economic downturn since 2009 arose. Instability from the US still existed despite the Presidential Election was over. The risk of global economic downturn still exists as “fiscal cliff” sharpens. These add pressure to oil price.

At the same time, tension in Gaza of Middle East grows. Although Israel and Palestine are not oil production areas, war may spread to nearby production zones, especially Iran, the country influences the global oil market for 10 years. Geopolitical risk supports the oil market when economic factors are not favourable, making oil price in Nov fluctuates slightly.

Upstream monomers

Average of Styrene（SM）in Nov was USD1566/ton, a 2% increase. Average of Propylene (C3) was USD1286/ton, a 0.9% increase. Average of Acrylonitrile (AN) was USD1659/ton, a fall of 11.9%. Average of Butadiene (BD) was USD1664/ton, a 12.3% fall.

Styrene has become the spotlight of the market recently. Its price increased in Nov, despite entering a slack season without rising support theoretically. The reason is on the supply side. Starting from Oct, many crack plants, including Taiyo and Idemitsu, started overhauls and suspended production. SM plants who suspended production concurrently delayed production resume as they remained a bearish market outlook. Supply decreased. On the other hand, the increasing trend continues as the fall of overseas shipping tightened the supply of Styrene.

The high oil price in Nov pushed Propylene up. But as the demand of its downstream product PP could not follow timely, the downstream push was relatively weaker.

Being a raw material of chemical fiber and ABS, Acrylonitrile could not get away from the poor downstream demand. The price falls. Following the devices re-opened after overhauls, the decrease extent increased as supply increases.

The automobile is influencing the Butadiene market. Automobile consumption is restricted to global economic downturn. Demand for tire matching and replacement significantly. Price of Butadiene continued its weak trend due to slow consumption of synthetic rubber stock.

Plastic raw material market

Demand for some brands of ABS in slack season is mediocre due to abundant supply. Many purchase according to their needs. Market transaction is greatly restricted. Market pressure piles up and the price in Nov slightly weakened. However, as its market share is big, its chemical plants offered prices conservatively. The room for adjusting market price contracted.

As the supply of upstream SM raw materials and PS stocks tightened up, the high price is supported in Nov. Production volume of chemical plants is small. Traders conservatively replenished their stocks due to a relatively high price. Circulation in market fell price and the price remained solid. However, the high price tightened up the profit margin of most downstream factories. The following demand is limited.

       Price of monomer C3 rose. Cost pressure of PP increased. Pre-cut production from chemical plants became effective and there is a rare stock in market. However, in Nov, the market transaction is minimal as there is limited terminal demand. Market price generally remained stable.

Forecast in December

Plastic raw material market——Short in supply, price rises

Figure 6: Market price chart of a GPPS & ABS Market (Jan 08 – Nov 12)

Source: Hong Kong Traders

The graph showed that the space between GPPS and ABS by the end of Nov decreased to USD160/ton, with a past space of at least USD300/ton. From this graph, the next step will be a rising ABS or falling GPPS. Styrene (SM), being the common monomer of the 2 plastics, its trend will prove vital.

Figure: Market price chart of a GPPS & SM Market (Jan 09 – Nov 12)

Source: Hong Kong Traders

    The difference between the cost of GPPS and SM is generally USD150/ton. The market price of GPPS will adjust according to SM.

The cost of SM is well supported as its upstream raw material Benzene is strong. Also, operation at ports will be affected due to possible blizzards in winter. Supply is easy to fall short.

Some chemical plants directly sell SM as the price of SM remained high. Its shortage became more serious. Traders are not enthusiastic in replenishing the stock of GPPS due to the high price. Chemical plants only gather the orders first before arranging productions. Shortage of stock supply of GPPS is common due to cyclic production. Its price is hard to fall. Its aggregate price remained strong and may rise.

Figure 8: Market price chart of a AN & BD Market (Jan 10 – Nov 12)

Source: Hong Kong Traders

AN and BD has reached their trough for 3 times since 1^st Jan, 2010. They reached the trough at the end of Nov 2012. In the late 4^th quarter, many AN plants in Japan, Korea, Taiwan and Mainland China started suspension and reduction, involving a total annual AN production capacity of up to 105 million tones, more than 20% annual production in Asia. The price of AN in Dec will rebound due to this strategy of using quantity to control the price by plants.

Being the last month in the year, automobile industry can hardly develop fast in Dec. The demand for tire is static. The price rebound of Butadiene (BD) is hard to foresee. Also, current overhauls in chemical plants are not concentrated, the supply is relatively balanced. It is highly possible to see a falling BD price before it becomes stable.

By taking these factors, as affected by the monomer cost, the rising ABS trend in Dec is quite significant.

It is easy for Propylene (C3) to rise following AN. Synthetic fiber Polypropylene, another downstream product of C3, can be used for building reinforcement and keeping warm. As the weather is getting cold in Dec, the demand for insulation and barrier materials will rise for some regions. This makes the market price of C3 remain high easily.

Cost pressure of chemical plants of PP production increase when C3 price remains high. Cheaper products in the market turn few when chemical plants cut production to keep the price. The rising trend is some brands of shortage is significant.

Suggestions

Different trends are seen in different materials in the plastic market. In order to avoid being affected by other factors which affect judgments, it is advised that clients should increase their attention in the supply chain of every material. At the same time, they should avoid using single material and pay attention to alternate materials.

Also, spot stock is falling as the short market supply remains quite a while. It is advised that clients know their expected production quantity better. They can pile stocks when it is necessary and save the production cost, making it the best purchasing strategy.

Appendix – Major Events

7^th November 2012            WTI rose 3.57% to USD88.71/ton on the US presidential Election Day.

8^th November 2012            Canton Fair ended poorly with a 9.3% drop in volume. International trade remains harsh as the demand in Europe and US continued to contract.

8^th November 2012            Barack Obama won its second term. “Fiscal Cliff” is US continued to catch market attention. WTI fell by 4.8%, reaching the lowest point since July.

20^th November 2012    Moody lowered the credit rating of France to Aa1 from the highest Aaa, and remained its negative outlook prospect.

～The End～

Company Information

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