China BG oversupply may worsen as Sadara starts commercial output

04:25' PM - Wednesday, 14/06/2017

Oversupply conditions in Asia’s butyl glycol (BG) key import market China may worsen, with fresh supply from Saudi Arabian producer Sadara Chemical expected to hit the region in the third quarter.

Market players are concerned that the new supply will aggravate downward pressure on BG prices in this region.

In the week ended 7 June, spot BG prices averaged $1,060/tonne CFR (cost and freight) China for cargoes subject to import duty, down by $55/tonne from the previous week, according to ICIS data.

Spot prices in China started to drop since early April and till the week ended 7 June it had dropped by around 10%.

Sadara Chemical Company, which is a joint venture (JV) between US’ Dow Chemical and Saudi Aramco, has started commercial production of butyl glycol ether (BG) at a new plant in Jubail , as per its announcement on 8 June.

The plant produces multiple grades of liquid derivatives, including butoxy glycol ether, butoxy diglycol ether, butoxy tri glycol ether and butoxy poly glycol ether, according to the company.

It has a combined BG and butyl di-glycol (BdG) capacity of 200,000 tonnes/year; and is expected to serve markets in Asia, Europe and the Middle East.

“The start-up of Sadara [BG plant] will definitely have an impact on the market. It is, after all, a big facility,” a BG importer in China said.

“However, the impact may not be immediate as it will take time for the market to assess the competitiveness of the new supply,” he said.

The new BG supply from Saudi Arabia would supplement Dow’s current supply from the US into Asia, and the first shipment is expected to reach Asia in August or September, according to market sources.

Sales discussions are yet to start for the first shipment, according to market sources.

End-buyers and importers are closely monitoring developments related to Sadara’s new facility, and are taking a cautious approach when purchasing cargoes.

Others foresee a period of rebalancing and adjustment with the new supply.

A source familiar with the matter said that as the plant is new, it would probably take some time to raise its production rate and perhaps production in full capacity would start from next year.

In China BG spot prices started declining in recent weeks as a result of softening domestic market amid weak demand.

Demand slows down in China and the region because of the lull summer season that typically starts in July, market players said.

Sentiments are bearish and some importers have put aside discussions for import cargoes as they take a wait-and-see approach.

The yuan-denominated (CNY) spot prices of imported BG in eastern China have shed 8.5% over a two-week period to around CNY8,600/tonne ex-tank on Wednesday, according to Chinese importers.

Demand for BG in China has been hit by stricter environmental checks being conducted by the Chinese government on manufacturing plants since the start of the year.

Some downstream small enterprises in the coating industry have had to shut down production or reduce output as a consequence.

Meanwhile, prices are likely to increase in southeast Asia this week, as regional producer Petronas Chemicals Group implemented a price hike on BG on the back of tight supply ahead of its plans to go on a turnaround in mid-July for two months.

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