Asia PO market sentiment improves on China plant shutdown

SINGAPORE (ICIS)–Recent declines in Asian import prices of propylene oxide (PO) look set to ease, as domestic yuan-denominated prices in China started to rebound this week with tighter prompt supplies.

Propylene oxide (PO) downstream polyols is mixed with isocyanates to produce polyurethane foams used in mattresses. (Source: TI Media Limited/REX/Shutterstock)

But upside potential may be capped, as long as downstream demand remains structurally weak.

Chinese PO prices in the domestic markets rose this week by yuan (CNY) 100-200/tonne, market sources said, and this could mark the end to nine weeks of consecutive decreases.

This invariably bolstered pricing sentiment for US dollar-denominated import materials, as import prices typically tracks closely pricing movements in the yuan markets.

Some sellers of import materials were angling to raise CFR (cost-and-freight) China offers by $20-30/tonne, if they still have any December availabilities to market.

But the bulk of December import supplies had been sold earlier, “at a time when pricing sentiment was distinctly weaker”, a regional trader lamented.

On 7 December, China’s import prices for PO tumbled 20% in the last month to settle at an average of $1,180/tonne CFR, according to ICIS data.

Domestic yuan-denominated prices chalked up similarly hefty losses during the same period, closing at an average of CNY 9,950 tonne DEL (delivered) China on 7 December, compared with CNY12,200/tonne DEL China in early November, the data showed.

The uplift this week has come as news surfaced that China’s Jishen Chemical is shutting down this week its PO facility in the northern Jilin province for servicing. The plant, operating at 200,000 tonnes/year of capacity, only restarted in November after a prolonged shutdown since August this year.

The expected shutdown boosted sellers’ sentiment, many of which sought to seize the moment to try and shore up the yuan-denominated markets with higher asking prices, citing tighter prompt availabilities.

This is also an opportunity “to rescue margins squeezed by recent increases in upstream feedstock propylene”, a PO maker in China said, as the spread between propylene and PO has narrowed significantly in recent weeks.

Doubts however linger among many buy-side elements if the uptrend could sustain, especially if downstream demand, such as in the key polyols sector, remains structurally weak.

Polyols is mixed with isocyanates to produce polyurethane foams used in the manufacturing of diverse items, beddings, mattresses, car seats to insulation panels used in electrical appliances or in construction.

But outlook for all these finished products are currently clouded by uncertainties generated by the protracted US-China trade dispute.

Several are at risk of being slapped in 2019 with hefty punitive import tariffs for US-bound deliveries if US and China failed to strike any fresh deals in upcoming trade negotiations.

“Hardly any customers want to buy and build polyols stocks at this stage,” a Chinese polyols maker admitted, adding that this means his polyols sales will continue to be slow, limiting his own ability to operate at higher rates and consume more feedstock PO.

Focus article by Ai Teng Lim

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