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NE Asia ethylene surges on restocking activity in China

Nov. 19, 2018

The market upswing, now in its second week, is driven by restocking activity, the start-up of a standalone downstream plant, as well as reduced domestic supply due to continued weak methanol-based production and an extended turnaround at a cracker in China.


Spot deals were done at $995-1,050/tonne CFR (cost and freight) NE (northeast) Asia for December-arrival cargoes, up from the weekly assessment of $920-950/tonne CFR NE Asia on 9 November.


The higher prices boosted selling interest, with more offers available than in the previous week.


Fresh supplies include 17,000 tonnes of December shipments offered by Asian producers via tenders, and at least around 9,600 tonnes of deep-sea cargoes.


Spot demand for December delivery is supported by downstream capacity expansion and reduced domestic supply.


Jiangsu Jurong Chemical is in the process of starting up its 200,000 tonne/year ethylene oxide (EO) unit and the company is targeting to have on-spec product by the end of the month. Its ethylene consumption will total around 160,000 tonnes/year at full production.


Domestic supply remains curtailed by weak methanol-to-olefins (MTO) operations and an extended shutdown at Shanghai SECCO Petrochemical’s cracker.


Shanghai SECCO is planning to restart some downstream plants before the cracker resumes operations. The schedule for the cracker and some downstream units to return on line is delayed as a result of restrictions on maintenance works at the complex during a major trade show that ended on 10 November.


Sinopec Zhongyuan Petrochemical took its MTO plant down last week on poor margins. That prompted the affected Shandong-based buyers to seek alternative import supply from domestic traders for December delivery.


Downstream margins are generally weaker due to lower spot prices in the first half of the week and higher ethylene costs. Prices for a number of commodities tumbled on destocking activity amid weaker crude futures, high inventory and year-end demand lull.


In the coming weeks, restocking activity in China will continue as there are still a number of buyers with firm requirements for December and due to new downstream capacity.


However, some companies will slow down spot purchases if the MTO plants resume operations. Methanol costs have decreased further this week.


Ethylene supply is expected to see an increase from renewed production cuts at integrated polyethylene (PE) plants in Asia, should ethylene prices continue to head in a different direction from the PE market. The outlook for the PE sector is bearish on ample global supply and tepid demand.


More arbitrage cargoes could head to Asia as well. European and US producers may take opportunity of the recovery in Asia prices to ship more cargoes in December as part of year-end destocking.


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