Asian prices soften further on economic slowdown risks
Asian TDI and MDI prices saw further price corrections against the backdrop of widespread uncertainties surrounding the global economic outlook.
On Tuesday, the US Federal Reserve unprecedentedly pledged to keep the Fed funds rate at exceptionally low levels at least through mid-2013. This signals that the US economic recovery will likely remain shaky until 2013, causing further unease among regional markets, especially those which are export-reliant.
In China, market players are also worried that the downgrade of the US’ sovereign rating would lead to further monetary policy easing, or even a QE3, which could not only push up the prices of global commodities, but also drive up China’s already high inflation rates in the second half of the year. Higher inflation would prompt the Chinese government to unleash fresh credit controls, which in turn would dampen chemical market activity, said industry observers.
On the supply front, further headwinds are also expected from the start-up of Bayer’s new TDI plant in Shanghai, which is said to have started commercial production, although company officials declined comment. Faced with an overhang of surplus capcity, regional TDI producers are expected to face greater difficulty in passing on their input costs to their end-users, prompting some TDI sellers to resort to various sales strategies and inventory management tools to defend eroded margins.
A number of south Korean suppliers said they have been withholding spot TDI offers to the China market for the past few weeks. However, demand in overseas markets such as the Middle East was also less favourable than expected, with customers there also demanding for spot prices on par with levels in the Chinese market despite the former’s higher freight costs, said market sources.
Although both buyers and sellers acknowledged that both MDI and TDI prices were approaching their historical troughs, they also pointed out that the current pullback in prices was insufficient in itself to encourage buying activity in the absence of other positive business catalysts, such as robust global export demand for the end-products.
Spot polymeric methyl di-p-phenylene isocyanate (PMDI)
PMDI spot prices shed $20-50/tonne to $1,850-1,900/tonne CFR China during the week, capturing transactions heard in the market.
Initial offers from regional producers were heard at $1,900/tonne CFR China, but only limited volumes were sold at such levels. Larger-sized customers were said to be able to secure prompt cargoes at $1,850-1,870/tonne CFR China, said market sources.
There were also market rumours of cheaper spot cargoes available at below $1,850/tonne CFR China, but this could not be confirmed.
At the same time, some negotiations for August shipments were said to be ongoing as a Japanese producer was reluctant to accept prices below $1,900/tonne CFR China. Based on raw material costs, PMDI cargoes should be priced $100/tonne higher than current spot market levels for producers to enjoy healthier profit margins, he said.
However, sellers acknowledged that demand from the refrigerator and construction segment were weak because of poor downstream business conditions, which could further dampen buying appetite for PMDI feedstocks in the coming weeks.
In the domestic Chinese market, spot PMDI cargoes in drums were heard sold by distributors at yuan (CNY)15,200-15,600/tonne DEL east China. Higher-priced cargoes at CNY15,700/tonne DEL east China were also heard available based on bank drafts.
In southeast Asia, PMDI spot prices were relatively stable at $1,930-2,000/tonne on a CFR basis, in line with current price discussions.
The majority of offers were heard at $2,000/tonne CFR SE Asia, although asking prices on both sides of the range were also heard, depending on customer size. Most bids were heard at $1,900-1,930/tonne CRF SE Asia. Customers voiced concerns about a possible recessionary scenario in the near-term caused by the debt crisis in the US and Europe, which made them hesitant about stock-building in the near-term, unless they cold derive more confidence about the market outlook.
For larger accounts, spot PMDI material was heard available at $1,950/tonne CFR SE Asia, with cargoes changing hands in the low $1,900s/tonne CFR SE Asia, said importers.
For smaller-sized customers, limited cargoes were heard sold at levels slightly above $2,000/tonne CFR SE Asia for August shipments.
In India, PMDI prices fell by $50/tonne on the higher end of the range to $1,900-1,950/tonne CIF India, as suppliers revised their spot offers lower to entice buying interest. However, sellers were generally reluctant to accept bids lower than $1,900/tonne CIF India, said market sources.
Spot monomeric methyl di-p-phenylene isocyanate ( MMDI)
In China, MMDI spot prices pared $20-50/tonne at $2,280-2,300/tonne on a CFR basis, as players started price discussions for August. The weekly sales volumes remained anaemic, as business conditions in the various downstream industries had not improved much over the past few weeks, said market sources.
Offers were whittled down to $2,350/tonne CFR China/ Taiwan, with some transactions heard at $2,300/tonne on a CFR basis, marking a $50/tonne reduction from the previous week.
Although suppliers generally said they were unwilling to accept prices lower than $2,300/tonne CFR China, larger-sized customers said they were able to locate spot material easily at $2,250-2,280/tonne CFR China.
During the week, market talk also emerged that cargoes of northeast Asian origin were sold at below $2,250/tonne CFR China, but further details were unavailable at publication.
In the Chinese domestic market, spot MMDI cargoes in drums were heard sold by distributors at around CNY19,200/tonne DEL east China, relatively unchanged from the previous week.
In Taiwan, cargoes of limited volumes were heard changing hands at $2,300/tonne CFR Taiwan, although a number of end-users said they were still holding back on their purchases due to a lack of downstream demand. In addition, some customers said they were anticipating MMDI prices to head lower in the near future.
Similarly, in southeast Asia, buyers were skittish about the near-term outlook and nervous about re-stocking as they were unsure about the extent of the potential economic downturn which could hit regional markets if economic growth stalls in Europe and the United States.
Spot di-isocyanate (TDI)
The spot prices of TDI held onto levels at $2,230-2,300/tonne CFR China Main Port/ Hong Kong this week. Regional producers said they had little motivation to lower offers as the overall demand was so sluggish that customers were generally price-insensitive. Further price reductions would do little to stimulate market appetite and yet at the same time, add further damage to TDI manufacturers’ profit margins further, they said.
As a result, the majority of offers from regional producers was maintained at $2,300/tonne CFR Hong Kong, with limited deals heard concluded in the $2,200s/tonne CFR Hong Kong on a need-to-buy basis only.
In the domestic Chinese market, TDI prices were also relatively stable this week. In the north, drummed TDI material were sold at CNY18,300-18,800/tonne DEL, unchanged from the previous week. A local producer attempted to implement a hike of CNY200/tonne, the effectiveness of which remains yet to be seen, as cheaper cargoes were plenty, said market sources.
In east China, drummed TDI cargoes were heard sold CNY100/tonne lower from the higher end of the range at CNY18,200-18,700/tonne DEL due to ample supply.
In south China, TDI prices (excluding VAT) were heard at CNY18,000-18,800/tonne DEL this week, with prices edging up by CNY100/tonne on the high end of the range for some customers.
In southeast Asia, drummed TDI prices pared $30/tonne at the higher end of the range to $2,300-2,350/tonne CFR SE Asia this week, capturing most deals heard concluded in the market.
Korean suppliers were heard attempting to raise their TDI offers by $20-50/tonne this week to $2,400/tonne CFR SE Asia on the back of ongoing and imminent plant shutdowns, but the overall market response was muted at such levels as lower-priced alternatives were in abundance, said industry observers.
Most other spot offers were heard at $2,350/tonne CFR SE Asia in Malaysia, Indonesia, Thailand and the Philippines, with buyers claiming that lower-priced cargoes at $2,300/tonne CFR SE Asia were also available.
Buying ideas were heard at $2,300/tonne CFR SE Asia among customers in Indonesia who said they were not in a hurry to make further purchase until the religious Eid-al-Fitr holidays were over in September.
An end-user in Indonesia said he procured Japanese cargoes at $2,350/tonne CFR SE Asia to replenish stocks, but he only bought half his usual requirements as he expected TDI prices to soften further.
Similarly, a large buyer in Thailand was said to be avoiding building up their raw material inventory in anticipation of lower prices.
In India, imported TDI prices skidded $50/tonne to $2,250-2,300/tonne CIF India, reflecting the majority of transactions heard during the week. Although larger foam manufacturers have resumed some buying activity, overall re-stocking levels remained sluggish, said market players.
This prompted TDI suppliers to lower their spot offers during the week to $2,300/tonne CIF India to lure buyers. Market talk also emerged that a few suppliers were willing to extend larger price discounts to customers who were willing to increase their purchase volumes.
In addition, the domestic price of TDI cargoes in drums was reduced by rupee (Rs) 7/kg to around Rs115/kg ex-works, all taxes and duties extra, during the week, exerting further downward pressure on import prices, said market sources.
Contract TDI
July contract prices were heard settled at $2,250-2,300/tonne CFR CMP/ Hong Kong, according to market sources, representing a sharp decline of $170-200/tonne over the previous month.
June contract prices were at $2,450-2,470/tonne CFR CMP/ Hong Kong.
For August, the list price was nominated at $2,350/tonne CFR CMP/ Hong Kong.
Production news
South Korea’s KPX Fine Chemical is still keeping its TDI facilities in Yeosu shut without a definite start-up date, a source close to the company said on Wednesday. The units were shut on 25 July and were supposed to resume production after one week. The company has three TDI units at the same, each with a nameplate capacity of 50,000 tonnes/year.
OCI Chemical is planning to shut its 50,000 tonne/year TDI facility in Gunsan, south Korea, for a week of maintenance from 22 August, a source close to the company said on Wednesday.
Production data
China’s Gansu Yinguang Chemical plans to shut its two TDI lines for a month of annual maintenance from 15 August, said market sources on Wednesday. The facilities at Baiyin, Gansu province, in northwestern China have a combined nameplate capacity of 100,000 tonnes/year.
China’s Shandong Yantai Juli, the sole TDI producer in Shandong province, shut its facility on 27 July for a scheduled shutdown lasting 20 days, sources close to the company said on Wednesday. The company’s 30,000 tonne/year unit at Laiying city in Shandong province will likely restart around 15 August.
Japan's Nippon Polyurethane (NPU) will shut its 200,000 tonne/year MDI facility at Nanyo in Yamagata prefecture for a turnaround of one month starting from mid-September, a company source said.
($1 = CNY6.43)
($1 = Rs45.24)
This week in ICIS news ( www.icis.com):
10-Aug-11 11:34 China's July vehicle production up 1.26%, sales rise 2.18%
10-Aug-11 10:22 China July exports increase by 20.4%, imports rise by 22.9%
10-Aug-11 09:56 Stock market turmoil, volatile crude stall Asia PET trades
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