Domestic yuan-denominated prices of epichlorohydrin (ECH) turned south this week as the downside pressures of low demand finally outweighed the upside support from protracted supply constraints.
Prospects of a recovery are slim, market participants said, as demand is structurally weak, although tight supplies may still help to slow down the pace of decline, or “at least provide a floor”, an ECH maker in China conceded.
Domestic ECH transactions averaged only yuan (CNY) 16,550/tonne DEL (delivered) east China on 6 Aug, CNY525/tonne lower week-on-week, ICIS data showed.
This also effectively spelt the end of a three-month-long rally which saw domestic yuan prices for ECH surging dramatically from barely CNY10,650/tonne DEL east China in early May to year-high levels of over CNY17,000/tonne by end July, according to ICIS data.
The sharp increases were triggered by substantial contraction in domestic supplies, as two major local plants – the 320,000 tonne/year Shandong Haili plant in Zibo, and the 130,000 tonne/year Jiangsu Haixing line in Jiangsu – remain shut for months on end.
These plants are currently still out of action, with no further clarity on when production can resume.
But as buying from major downstream users - particularly the epoxy resins makers - continued to falter, this supply limitation factor proved insufficient to keep the pricing uptrend sustained for longer.
ECH is used mainly to produce epoxy resins which has heavy applications in sectors like automobiles, and construction, both of which have been badly hit by the economic downturn.
Understandably, this has also impacted on automobile makers’ uptake of raw materials like epoxy resins, forcing epoxy resins makers in China to review anew their own production plans, so as to minimise surplus stocks.
Market sources pegged current average operating rates among Chinese epoxy resins plants at barely 70% of capacity, adding that additional cuts may be in the pipeline.
The latter will only serve to "further dampen ECH requirements in China", a trader said.
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