Market and product

Propylene oxide (PO) prices in east China hit their lowest in more than three years on bearish demand, which will likely persist in the short term on reduced downstream polyester production amid the coronavirus outbreak.

Spot prices in east China on 10 February closed at yuan (CNY) 8,650/tonne, the lowest recorded since 11 November 2016, ICIS data showed.

The prices were down by CNY1,150/tonne compared with levels before the extended China Lunar New Year holiday (24 January-2 February 2020).

Weak demand will directly offset market support expected from tighter import supply due to a scheduled turnaround at a major facility in the Middle East.

Most end-users have yet to return to the market, significantly reducing demand for polyester.

As most polyester producers are saddled with high inventory, and consequently, strong pressure pressure, most of them have either cut or stopped production.

Other producers that conducted maintenance at their plants have delayed restarting operations amid the coronavirus outbreak.

Polyester producers’ PO demand may be slow to recover as their run rates depend on end-user requirements. Plant restarts from maintenance are now subject to local government approval, according to industry sources.

The polyester sector accounts for about 78% of the total PO consumption in China.

Other downstream propylene glycol and alcohol ether producers have also either cut or stopped production.

Apart from poor demand, logistics constraints after the holiday were also behind the strong build-up in PO producers’ inventory.

Transportation within a province is restricted while intra-provincial transport was largely suspended in the week ended 7 February. As a result, cargoes in northern China could not be delivered to the eastern parts, industry sources said.

Chinese PO plants’ overall run rate has fallen to 68% amid feedstock shortage and sales pressure, down from the pre-holiday level of 82%.

Production cutbacks are mostly in Shandong province, with the theoretical production losses estimated at around 1,200 tonnes/day.

Before the holiday, most participants were optimistic about the market in the first quarter, citing tight import supply due to a turnaround at Saudi Arabia’s plant.

Saudi Arabia-based Petro Rabigh is scheduled to shut its 200,000 tonne/year PO unit in late February or early March for 50-60 days of maintenance, according to market sources.

Saudi Arabia exported around 15,000 tonnes per month of PO to China in 2019.

Expectations of tighter supply sent China’s PO import prices rising above domestic prices in February, the first time this happened since June 2019. The price gap stood at around CNY10/tonne last week.

Downstream demand has since weakened substantially and may take time to recovery as the outbreak of the novel coronavirus (2019-nCoV) has yet to be contained. - ICIS-