Market and product

The upside to ethyl acetate (etac) prices in Asia may be limited despite the recent gains in raw material prices and even as lower Chinese output keeps a lid on supply, market participants said on Thursday.

Etac prices rebounded in the week ended 24 February, the first upturn in eight reporting weeks.

The prices closed at an average of $735/tonne FOB (free on board) China in the week ended 24 February, up by 0.3% from the 17 February finish of $732.50/tonne FOB China, which was the lowest close since 18 November 2016, ICIS data showed.

Despite the recent firming in raw material acetic acid prices, a number of etac market participants, producers included, say that the scope for a further feedstock-led etac price increase may be limited.

However, the market participants also share the view that etac prices are unlikely to fall in the near term.

“While we see some difficulty in pushing through further etac price increases, the downside is also limited by the recent increase in our feedstock costs,” a China-based etac maker said.

“There is no room for etac prices to drop,” a separate Chinese producer said.

In the feedstock sector, acetic acid prices have amassed 10% of gains from two weeks of run-up to finish at an average of $385/tonne FOB China on 24 February, according to data compiled by ICIS.

The prices of co-feedstock ethanol in China should also be supported by the higher import duty that came into effect on 1 January, according to input from market participants.

China has hiked the tariff on ethanol imports to 30%, from 5.5% prior, in a bid to support the local industry.

Although the bulk of imported ethanol is used in fuel blending, rather than petrochemical production, the significant duty increase is expected to tighten supply and support the prices of industrial ethanol, the market participants pointed out.

Tepid domestic etac buying activity and an anticipated slowdown in South Korean demand for Chinese material were the most commonly cited reasons for etac market participants’ conservative market outlook.

The pace of recovery in downstream demand since the end of the Lunar New Year holiday in China has been slower than expected, a producer said.

Furthermore, demand from the coating, printing ink and petrochemical solvents sectors has been stifled by the Chinese governments’ crackdown on polluting industries, some market participants added.

“The tighter environmental protection regulations has had a real impact on downstream demand,” a Chinese etac trader said.

“To comply with the increasingly stringent guidelines, end-users in the coating industry have been keeping low inventories of both raw material and end product. The alternative is to halt their operations altogether,” a separate Chinese solvents trader said.

Expanding domestic etac capacity in South Korea, one of China’s key export markets, is also expected to reduce South Korean demand for Chinese material.

South Korea’s sole etac maker Korea Alcohol Industrial aims to begin commercial operations at its new etac plant in early March. The plant will be able to produce 45,000-50,000 tonnes/year of etac.

Ahead of the commissioning of Korea Alcohol’s plant, a Chinese etac producer said that it will need to divert its exports to other regional markets to make up for the loss of its market share in South Korea.

In addition to China, South Korea has also been a regular importer of etac from Saudi Arabia.

On the supply side, Chinese etac output has been curtailed by production caps and upstream production issues.

Guangxi Xintiande Energy has been capping its etac plant run rate at 40% capacity since early February and does not have immediate plans to raise its output.

Compatriot Wuxi Baichuan Chemical Industrial’s longer-term etac production level is maintained at 40-50% capacity.

In addition, Jiangsu Sopo Chemical’s etac output has been curbed by an unplanned outage at its upstream acetic acid and methanol units since 18 February.

“Judging by the recent feedstock price movements, etac prices should be heading higher. But prices seem to be stuck in a fairly narrow range,” the first Chinese trader added.

China exported 400,901 tonnes of etac in 2016, a drop of 1.2% from 2015, according to the country’s Customs data.

China, with 3.45m tonnes/year of capacity, is Asia’s largest producer of etac. - ICIS