SE Asia C3 snaps uptrend; market to stay bearish in March

Spot propylene prices in southeast Asia have snapped their three months of uptrend amid a sudden glut in supply, with the market outlook bearish for the rest of March, industry sources said on Monday.

On 3 March, propylene prices fell to an average to $980/tonne CFR (cost and freight) SE (southeast) Asia, down by 6% from early December 2016, according to ICIS data.

"Supply is easing now," said one buyer in the region, adding that the price spread between northeast and southeast Asia is expected to come down in the next few weeks.

As of last week, southeast Asian propylene prices are on average $40/tonne higher than in the northeast Asian market.

Ongoing plant turnarounds are set to conclude this month, boosting supply while demand is largely stable in southeast Asia.

"There is no demand in southeast Asia we can see, we are told that southeast Asia end users have covered their demand already," said a trader.

Consequently, more cargoes from this region are expected to head to northeast Asia, market sources said.

Before last weeks' sharp decline, propylene spot prices in southeast Asia had surged by 52.2% since early December as a heavy turnaround schedule had tightened supply in the region.

Significant volumes had also been committed to northeast Asia at the time, according to market sources.

But in recent weeks, demand from China has softened due to weak performance in the downstream polypropylene (PP) market, thus, closing an important sales outlet for southeast Asian propylene cargoes.

A southeast Asian producer heard to be under some inventory pressure eventually decided to float a sales tender last week.

The tender, with volume in excess of 10,000 tonnes, was concluded in the early part of last week on a formula-linked price basis, at a discount of $100-$150 to CFR SE Asia quotes, market sources said.

Two other spot propylene tenders were floated, one of which were concluded in the week ended 3 March, as producers are trying to find ways to offload inventory.

Turnarounds at some downstream plants of integrated producers may have triggered their decision to issue propylene sales tenders, market sources said.

These tenders reversed the previously held notion that it was difficult to secure spot cargoes of the right arrival timing in the region.

They signal significant shifts in supply-demand balance as similar tenders in February were concluded at premiums to CFR SE Asia pricing.

Some of the successful bidders for the March tenders have indicated plans to send the cargoes northward, as southeast Asian buyers have mostly covered their requirements for the month.

In general, traders hope the large discounts, as well as a bearish outlook for the month of March in southeast Asia would be enough to offset freight cost to northeast Asia that was showing signs of weakening.