Market Reports

Plastics Market is about to Soar

2012-12

Table of Contents

Plastic Market in December – a recap. 2

International Oil Price（WTI）——Rose slightly.. 2

Plastics Market——About to soar.. 4

Summary in Dec.. 6

Forecast in January 2013.. 9

Plastic raw material market—— Generally stable, but may rise.. 9

Suggestions.. 10

Plastic Market in December – a recap

International Oil Price（WTI）——Rose slightly

Figure 1: International Oil Price (October - December)

Source: NYMEX

The WTI average in December is US$88.1/barrel, a US$1.5 increase from last month’s average, or a 1.7% increase.

WTI dropped 5^th in a row in early December, reaching a US$85.56/barrel, making a US$2.94, or 3.3% decrease. WTI backed to rise 5^th in a row in mid-December, returning to US$90.13/barrel, rising by US$3.4, or 3.9%. The oil price has dropped some time in late Dec, but then it rose to the monthly highest US$90.98, the highest in 9 weeks.

WTI fluctuated quite a lot in December. But comparing with last month, it only rose a little.

Upstream Monomers——Rising mainly

Figure 2: Upstream Monomers (Oct – Dec 2012)

Source: NYMEX

Source: NYMEX

Comparing with last month, in December, except C3 (Propylene) fell by 4%, other upstream monomers who are main materials for hard plastics, like SM (Styrene), AN (Acrylonitrile) and BD (Butadiene) all rose, by 7%, 6% and 7% respectively.

Despite going in different directions, SM and C3 went gently with big fluctuations. However, a certain difference has been made by the end of the month from the price in early Dec. SM has accumulatively risen by US$80, or a 5%. C3 has fallen by US$41, or 3%.

   AN and BD rebounded at a low price of US$1665 and US$1455 respectively. At that time, BD has fallen for 11 weeks consecutively, making it the lowest in 3 years. AN has risen by US$136, or 8% throughout the month. BD rebounded in mid-Dec and the increase widened in the following 2 week. It rose by US$80 in Dec, or 5%.

Plastics Market——About to soar

ABS

Figure 3: The comparison of spot price and production cost in an ABS market (2012 Oct – Dec)

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.

The trend of ABS in recent 3 months looked like a “U”. It soared in Dec. Take the quote of spot price in an ABS market, it rose stepwise clearly. 3 equilibrium points appeared in early, mid and late month. Its difference between the production cost has remained by US$5-7. 2 curves are very close in general. ABS rose by US$55, or 3% over the month. The production cost rose by US$70, or 4%.

PS

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

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.

GPPS rose steadily in Dec. In early Dec, the spot price quote was close to its production cost in a GPPS spot price. Then the production cost has fallen by US$18. The market price rose again after stabilizing for a short while and its difference between the production cost widened. At late Dec, the market price is US$69 more than the cost. GPPS has risen by US$124, or 7%, throughout December.

PP

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

       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.

PP remained steady in Dec. The price of a HOMO PP was US$132 more than its production cost. The price went down a bit but returned to stability at last and remained at around US$1580/ton quite long. Production cost remained steady and fell a bit. In late Dec, the spot price was US$210 more than the cost. PP has risen by US$54, or 4% in Dec; production cost has fallen by US$53, or 4%.

Summary in Dec

International Oil Price

The WTI rose 1.7% in the last month of this year. The month average was US88.1/barrel, a 12% decrease from the average in last Dec of US98.59/barrel.

The US bipartisan budget negotiation is also concerned. The progress of solving “fiscal cliff” has influenced the oil market throughout Dec. The atmosphere of discussion also led to obvious stages of performance of oil price. It fell 5^th in a row in the first half of the month; while rose 5^th in a row in the second half.

At the same time, Standard and Poor’s, the rating agency has raised Greece’s sovereign rating to B-. Her European companions tried their best to make Greece stay in the Eurozone. The German parliament has also approved the new aid measure. The collaboration in Eurozone on improving the economy has improved the market confidence. Also, the demand for heating oil increased and supported the oil price. The oil price rose slightly in general.

Upstream Monomers

In Dec, some upstream monomers rose, some fell. Comparing with last month, SM (Styrene) rose 7% to US%1670/ton, C3 (Propylene) fell 4% to US1233/ton, AN (Acrylonitrile) rose 6% to US$1759/ton and BD (Butadiene rose 7%) to US1549/ton.

Some Asian aromatics cracker shut down. Demand for pure Benzene became tense and it price rose, leading to a continuous increase of downstream monomer SM. At the same time, 5 big SM factories in Asia started yearly overhauls. SM has plenty support to rise. Its price quote in fast east rose to a historical high of US$1,710/ton.

AN rose in Dec due to an increase of oil price in its steadiness. The price of its material C3 remained high. Also, most factories in Korea and Taiwan maintained a low load start and supported clients with low contracts. Purchase outside Asia wasn’t abundant either. Aggregate supply of Acrylonitrile became tense.

Tires and footwear, downstream products of BD contracted. Its price continued to go down in early Dec. Some cracker plants decreased production or started overhauls to avoid serious loss. In late Dec, Chinese buyers purchased January shipments before the Chinese Lunar New Year, while Korean manufacturers wanted to finalize their contracts before Christmas. A concentrated demand activated the market atmosphere. BD rebounded from the low point. The price soared.

Plastic raw material market

Plastics market rose in Dec, with ABS being a more explicit one as the cost of Styrene was higher. Chemical plants like Korea Kumho and LG reduced ABS capacity. CMO also lowered its production down to 50%. Supply of some goods fell. Inventories for chemical plants and traders went down. The price increased gradually.

Styrene increased. The cost pressure of enterprises producing PS increased. Ex-factory price of CMO and Formosa increased every time. Operating rate for some chemical plants is low. Together with delays in shipping, the tense supply is hard to relieve. The market price of PS steadily increased due to cost pressure and tense supply.

Spot supply of PP was relatively relaxed. But orders in advance have to be made for some models. There is no production for PP in Formosa due to faulty production line. Also, as Acrylonitrile led propylene to rise, the cost pressure of PP is also high. There is no sign of falling although the market isn’t very good. Also, as there are demands for fan products and some swimming products in summer, the price of PP is supported and remained high.

Forecast in January 2013

Plastic raw material market—— Generally stable, but may rise

Figure 6: Market price chart of a ABS, GPPS & SM Spot Market (Jan 08 – Dec 12)

Source: Hong Kong Traders

From above figure, from Jan 2008 to Jul 2012, the price of GPPS and HOMO PP associated with each other very much. Then GPPS soared more and became close to the increasing ABS. Its difference from PP enlarged. The reason is the raw material SM (Styrene) rose continuously.

According to this trend, as time goes by, the price ABS and GPPS will become closer and closer; the difference from PP will become larger. Its trend of returning to rational pricing will increase. So how’s the continuity of rising ABS? Will GPPS fall or PP increase?

Firstly, by analyzing by costs, ABS upstream monomer AN (Acrylonitrile), BD (Butadiene) rebounded from the trough in December. In the coming Jan, centralized stocking by manufacturers prior to Chinese Lunar New Year will continue its rising trend.

Also, the price of SM, the common monomer of ABS and GPPS, continued to rise due to annual overhauls in big factories in Asia in the 4^th quarter. Together with shortage of Benzene in Asia, tense supply and demand for SM is hard to improve.

The price of SM is at its historical high. Some chemical plants turn to sell monomers. Due to tense supply in US market, some Asian stocks are shipped to US and intensified shortage in Asia. Also, the coming quarter 1 is the peak season for overhauls. The tense supply is likely to sustain rising trend.

Let’s consider in terms of supply next. Given that cost of monomers remained high, the cost pressure of enterprises manufacturing ABS and GPPS is high. The relatively low operating rate of the industry makes the tense supply hard to resolve.

The last forecast is that ABS will likely maintain the rising trend in January, given high cost and inadequate stock supply. GPPS will likely fluctuate slightly at its high range.

Back to the above figure, GPPS and PP curves can return rational only when PP increases. Talking about costs, C3 (Propylene) powder market continued to rise. Operating rate of its downstream product Propylene oxide also improves and leads to a higher C3 demand. At the same time, the extremely cold weather in some regions also increased the demand for films and sheets, and formed the upward force of PP. Generally speaking, PP is likely to rise in Jan.

Suggestions

The Lunar New Year is approaching. Clients concentrate their stocks prior to the holiday during this period. To save cost when plastic market is rising, it is important to seize the correct time to make timely purchases. It is practical to put materials into warehouses.

Pay attention to recent plastics market. The price of ABS and HIPS are close to each other. Toy clients can seize the opportunity to change to using ABS materials. There are many better materials to choose in the same price range.

Also, it is recommended to refer to the relevant information of the price charts on www.sunta.hk. You may comprehend more from years of historical data. You should carefully plan your production plan according to your orders.

Appendix – Major Events

13^th December 2012    US Federal Reserve made a new promise on interest rate and launched a new stimulus plan – purchasing US 45 billion of treasury bonds every month, in replace of the operation twists (OT) to be ended at the end of Dec

15^th December 2012     Butadiene in Asia ended its consecutive falling after 11 weeks and rebounded from the trough, increasing 7% from the 3-year end of USD1455 to USD1550.

26^th December 2012        Styrene (SM) continued to rise. The newest quote in plastics market in Fast East reached a historical high of USD1710/ton.

～The End～

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