Market Reports

Rising and Falling at Times

2012-09

Table of Contents

Plastic Market in September.. 2

International Oil Price（WTI）--Falling from the high.. 2

Upstream Monomers—Falling and rising at times.. 3

Plastic resins market— Rising and falling at times.. 5

Forecast in October——Becoming Steady and adjust slightly.. 11

The International Oil Price（WTI）——A tentative downward trend   11

Upstream Monomers——The rising trend relaxes.. 12

Suggestions.. 14

Plastic Market in September

The International Oil Price climbed after the US Federal Reserve launched QE3. The inventory is US increased when Saudi Arabia increased production. The oil price started to fall. As the impact of oil price is explicit, the originally heated plastic market became on the fence. Both rising and falling are seen in the market.

International Oil Price（WTI）--Falling from the high

Figure 1：International Oil Price (WTI)（2012 July- September）

Source：NYMEX

Table 1：Volatility Scale of International Oil Price

International Oil Price was quite volatile in September. It rose to USD99 after the launch of QE3, following a decrease to below USD90. The volatility scale amounted to 9%. It was USD92 by the end of the month.

The European Debt Crisis relieved a bit after the Federal Constitutional Court of Germany had approved a new bailout fund in the Euro Zone. The WTI rose to around USD97.

The US Federal Reserve announced the launch of QE3 (The third round of quantitative easing) on 14 September then. Big scale commodity and the US Stock market rose drastically and the oil price reached a highpoint at USD99.

However, the first unemployment claims in US rose continually. The quarterly manufacturing expansion rate came to the lowest in 3 years. The oil price fell from the highpoint.

The average WTI in September was USD95, a 1% increase from the August average USD94 by USD1. It was a 10% increase from last year’s average USD86 of USD9.

Upstream Monomers—Falling and rising at times

Figure 2: Upstream Monomers（2012 July - September）

Source: Chem99

Source: Chem99

Table 2: Volatility Scale of Upstream Monomers

Affecting by the poor economy, lowered production rate in the industry, supply shortage and low inventory level, the price of SM (Styrene) rose fifth in a row to USD1520. It later climbed to a highpoint at USD1549. Following the drastic fall in oil price in late September, the price of Styrene went soft. The end-of-month price was a 5% increase from the beginning of the month at USD1518.

The price of C3 (Propylene) didn’t fall drastically despite oil price fell continually. The shortage of stock at spot still supported the price of C3. Generally speaking, it was a 2% increase from last month. But the demand isn’t as thriving as last year, with an 11% decrease from the same period last year.

The price of AN (Acrylonitrile) rose steadily due to intense supply and the high price of propylene, its raw materials. It’s a 5% increase from the price last month. The demand of Acrylonitrile from the downward ABS was comparatively stable, but the demand from Acrylic fibre was still quite weak. It was a 9% fall from the price same period last year.

The downward tires manufacturer of BD (Butadiene)’ businesses recovered slowly. The demand of synthetic rubber rebounded weakly. The price of Butadiene rose slowly before falling back. It was a 2% fall from the price last month in general. The development of automobile industry was slow due to the unfavourable macro economy. The demand for tires was slow. Butadiene experienced a 41% decrease from the same period last year.

Plastic resins market— Rising and falling at times

ABSFigure 3: The comparison of spot price and production cost in an ABS market（2012 July–September）

Source: Hong Kong Traders

The cost of ABS in the figure is calculated by 0.6*SM（Styrene）+0.25*AN（Acrylonitrile）+0.15*BD（Butadiene）+US$300.It hasn’t included expenses like terminal handling charges.

Table 3: Volatility Scale of an ABS market

The price of ABS was explicitly volatile in September. A model of ABS rose 4% from a low point of USD1932 to USD2011. It later fell back and the rise accumulated was gone until the end of the month. Generally speaking, the price of ABS experienced a 3% decrease from last month, and 8% from the same period last year.

The price of SM (Styrene), a monomer raw material of synthesized ABS was high. The price contradiction between the production cost of ABS and the market price was clear. The production cost was USD1999 at the end of the month, a USD33 higher than the stock price of an ABS model, USD1966.

PS

Figure 4: The comparison of spot price and production cost in an GPPS market（2012 July - September）

Source: Hong Kong Traders

Figure 4: The comparison of spot price and production cost in an GPPS market（2012 June - August）

Table4: Volatility Scale of an GPPS market

GPPS performed steadily in September. Its price contradiction vanished in mid-September due to the slow price increase. Generally speaking, GPPS rose a slight 2% comparing last month, and rose 3% comparing same period last year.

When SM (Styrene), a major monomer raw material of synthesized GPPS was at a high USD1549, the production cost of GPPS was also as high as USD1669. The production cost fell below market price at the end of the month by around USD21.

PP

Figure 5: The comparison of spot price and production cost in an HOMO PP market（2012 July- September）

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.

Figure 5: Volatility Scale of an HOMO PP market

The PP in September was generally a tentative increase, with a 3% increase from last month. The rise was steady throughout the month. There was a 3% increase from the start of the month to the end of the month.

At the beginning of the month, the market price of a model of HOMO PP and the production cost overlapped at around USD1485 that time. Later the price of PP started to increase. There was a larger difference between its production cost at the end of the month of around USD45.

Summary of September

• WTI

The average WTI in September was USD95, a USD1, or 1% increase from last month’s average USD 94. There was an increase of USD9, or 10% when comparing the USD86 the same period last year.

A new bailout fund has lowered the cost of loan in Italy and Spain, the 3^rd and 4^th largest economy in the Euro Zone. The market atmosphere has improved a bit.

At the same time, the global manufacturing index fell. The manufacturing index in US has fallen to a 3 year low. It was clear that there was a growing expectation for the US Federal Reserve to launch a stimulus plan with traces. The oil price continued to rise. After the announcement of QE3, the oil price rose to USD99.

Also, the series of violent Anti-US act in Arabia also worries the market. The market worry of potential military conflicts and interruption of supply was provoked.

Generally speaking, in September, the seriousness of European Debt Crisis has made the oil price hard to remain high. The supply worry induced by tensions also limited the downward trend of oil price. It was clear that the WTI rose at first and fell after.

• Upstream Monomers

In September, SM (Styrene) rose by 5%, C3(Propylene) rose by 2%, AN (Acrylonitrile) rose by 5%, BD (Butadiene) fell by 2%.

The market demand of EPS (construction materials), downstream of SM was quite good. The price of Styrene remained strong as the supply of pure benzene was intense. But following the drastic decrease in oil price, there was pressure at the highpoint. The price became volatile.

The performance of C3 (Propylene) was comparatively steady. Its price remained steadily high when the oil price was high at the beginning and the middle of the month. The price of PP, its downstream product isn’t explicitly volatile either. Its price was steady with a fall in the whole September.

The market price of AN (Acrylonitrile) rose in September due to intense supply resulted from more overhauls. At the same time, the sales of Acrylic fibre, its downstream product was slow. This resulted in a falling demand for Acrylonitrile and limited the rise in its stock price.

The inventory of BD (Butadiene) was small and this supported the price. The demand from the tire industry rebounded but not thriving. The upward trend of Butadiene continued but lacked support.

Plastic Market

The busy once-a-year peak season for manufacturing industry was close to an end following the October Golden Week. They are not only busy at production, but also shipping the Christmas goods. As the traditional production peak season fades away, the seasonal fall in downstream demand will start.

• ABS

Market price of ABS fluctuated larger in September. The rising trend in mid-September was mainly supported by the rising production cost of monomer raw materials. The demand from the end was slightly weaker. The whole cost of ABS reached above USD2000/ton at the time and led to a stop of open quote by Formosa Group. Chimei even requested for limited supply from agents. The market heated up and the price rebounded.

In the late September, the oil price fell from the highpoint. Volatility appeared among monomers. The ABS market turned on the fence from the heat, but the cost of chemical plants remained high. At the same time, there still existed insufficient supply for some models. The market price ended the fall and turned steady.

• PS

SM (Styrene), the major monomer raw material for GPPS and HIPS rose consecutively for 5 times to above USD1500/ton. The several ex-works price for chemical plants were quite strong. The price quote for traders generally remained at the mainstream price, and rose tentatively bit by bit.

The downstream demand of PS didn’t improve explicitly in late September. But the price of monomers remained high. Chemical plants faced a pressure on cost. Also, as sales was good in Mid-September. Under the prerequisite of no inventory pressure at the moment, the falling ex-works price wasn’t explicit. The market price was generally steady with a small volatility.

• PP

The price of C3 (propylene) reversed the rising trend in August and dropped slightly in September. The price of PP was higher; orders from agents were also small. There are supply faults in the market from time to time.

Generally speaking, in September, the PP rose for a longer time. The market price was higher than the cost by quite a large extent. Price contradiction vanished.

Forecast in October——Becoming Steady and adjust slightly

Downstream demand released again after the holiday. The plastic market thrives again. The supply for goods will be consumed slowly. For some brands, the supply is extremely intense. The market price begins to be steady. The slack season will start when small price fall is unavoidable. As monomer price remains high, the ex-works price is hard to fall and leads to a slim chance of drastic price fall. Agents thus can possibly cut the purchase amount as factory demand falls, so that the cost pressure caused by inventory can be avoided. Quantity in market will gradually decrease to balance the market supply and demand.

The International Oil Price（WTI）——A tentative downward trend

The International Oil Price mainly stayed around USD91-USD100 in September due to QE3 and European Debt Crisis. How will it go in October?

The Sino-Japanese tension grows due to Diaoyu Island disputes. Some Chinese people boycotted Japanese products and the association between the 2 countries decreased drastically, which hindered tourism further for both. It will seriously affect aviation, industry, tourism, transportation, retails and services and is unfavourable to economic development. The oil demand may be hindered.

The European Debt Crisis persists. The official application for bailout from Spain will accelerate the pace of solving the crisis. There is a high expectation from various sides.

The oil price was pushed up after the launch of QE3. Fundamentally speaking, a high oil price will hinder consumption and is unfavourable to US economy. As the election in November in the US is approaching, out of the political interests and economic considerations of various parties, they will hope than the oil price returned to an acceptable range.

A too high oil price will worry the oil exporting countries as well, for the development of alternate energy is restricted by cost. The alternative of same value will only worth development and promoting when it is lower than the WTI. If WTI continues to rise, alternate energy will grow its market value and hit the financial income of those oil exporters.

Generally speaking, if Saudi Arabia devotes to lower the oil price, the possibility of a falling oil price will grow higher. It is estimated it will remain fluctuating between 85-95.

Upstream Monomers——The rising trend relaxes

Rising and falling was seen in various monomers in September. In the coming October with extra QE3, will the economy turn better and lead the market demand of monomers? How will the market go when there is a Supply Vs Demand?

The overhaul of the No. 2 Alkene Cracker of the Formosa plastics group finished and mass production resumes. The annual production of Ethylene at 1.035 tons resumed. The supply of the raw material of SM (Styrene) was added. The inventory of BD (Butadiene) increased a bit. Although the demand of rubber, downstream product of Butadiene turns good, but some synthesized rubber and ABS units plan for overhauls in October. At that time Butadiene may experience excess supply and hinder the price.

The cost support for C3 (Propylene) is firm due to high oil price. Driven by demand, the possibility of price volatility at a high level is high. As the demand for chemical fibre falls, filling inventory for the AN (Acrylonitrile) processing industry will boom. This situation may lead to a rising trend for Acrylonitrile.

• ABS

The price of the raw material of synthesized ABS remained high. The rise in cost limits the profile margin of chemical plants and challenges the ex-works price. The fall in ex-works price isn’t explicit when chemical plants resumed working in late September. The low willingness for agents to replenish stocks leads to the hard replenishment of market supply.

After the long holiday in October, the downstream factories resume normal production and release demand to a certain extent. But the demand in ABS market is still weak and the price may fall a little bit. But as the cost of chemical plants maintains at around 1900/ton, there is little room for big downward adjustment.

• PS

The downstream demand for GPPS has been relatively weak for a long period of time. But as quantity restricts price, the factory-gate price doesn't show signs of going down. Also, the kind of goods in the market is of homogeneity and small quantity, the supply and demand is relatively balanced.

Despite the price of SM (Styrene), the upstream monomer of synthesized PS fell consecutively in April and accumulated a certain fall. But generally speaking, the fall didn't relieve the high price of SM, the cost support of PS is steady. The price is hard to fall in future.

• PP

The price of C3 (Propylene), upstream monomer of PP remains steady but falls at times. The cost support is becoming weak. In September, there already existed a larger difference between spot price and production cost.

However, the demand for PP is generally more optimistic. Also, the stock in market can't be sufficient. There will be supply faults for some models and the market volatility won't be large despite price falls. It is still the downstream demand that affects the trend of PP in October. After the traditional peak season, the market price will very likely remain steady mainly, and may go down.

Suggestions

After experiencing the price falling stage in the plastic market, the practice of accelerating sales of goods by traders will consume the stock faster. The fall in supply can easily induce a change in the market atmosphere. It is better to take precautions earlier when there are sudden changes in the market.

It is suggested that clients should understand their own demand of production and conduct reactive approaches. In an acceptable price range, they should accumulate stock at suitable time and diversify purchasing risks.

Also, it does no harm to look for bargains when there is a cheap price in the market. If clients are using a specific material, they should pay more attention to see if the stock can fulfill production needs and guarantee normal production.

Appendix - Major Events

14 September 2012The US Federal Reserve launched QE3 and purchased mortgage-backed securities (MBS) worth USD40 billion monthly. The existing operation twists (OT) remain unchanged.

15 September 2012The simulative effect of quantitative easing by US Federal Reserve extends. US Dollar falls and reached a 4-month low against EURO. The New York crude oil climbed to USD99.

27 September 2012The Spanish economy went down significantly. Labour Unions in Greece went on strike in regards to austerity measure. The European Debt Crisis worsens. The New York crude oil fell below USD90.

～The End～

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