Recent Market Review in Organic Raw Materials.

Phenol and acetone: both in overall slackness

The domestic phenol market continued a downslide in December 1999. The price at the end of December dropped to 6 500 - 6 600 yuan per ton in Jiangsu and Zhejiang and 6 800 - 6 900 yuan per ton in South China, a reduction margin of 3% from the price at the end of November.

The domestic acetone market made a big margin drop in December. The price of the anhydrous variety at the end of December was 6 500 - 6 600 yuan per ton in Jiangsu and Zhejiang and 6 600 - 6 700 yuan per ton in Guangdong, a reduction margin of 8.4% from the price at the end of November.

Market factor analysis:

(1) soft demand in downstream products

Downstream enterprises were faced with a capital shortage at the end of last year. They could not afford to have a large inventory even if the price of phenol and acetone was low.

(2) increase of domestic resources

The expansion of the phenol/acetone unit in Gaoqiao Petrochemical Corporation led to an increase of domestic resources. The competition for market shares was intensified in main consumption areas such Jiangsu, Zhejiang and South China.

(3) price and inventory reduction at producers

Faced with a soft demand in downstream enterprises, the inventory at 4 phenol/acetone producers using the cumin process built up fast. In order to reduce inventory some producers issued favorable price policies, causing a sustained price drop.

(4) impact from imports

In December 4 000 tons of imported phenol was delivered mainly from Korea and Japan at a transaction price of 560 - 590 U.S. dollars per ton. The low-cost imports produced a considerable impact on the domestic market.

In December 4 000 tons of imported acetone was delivered. The delivery was concentrated in the second half of the month, causing a further drop of the market price.

With the coming of the slack demand season, the domestic market price of phenol and acetone continued to go down.

Prospect for January:

The domestic phenol/acetone market at the beginning of this year will allow no room for optimization. The imports will have no big impact, and the domestic market will mainly be determined by the domestic demand and the marketing strategy adopted by producers.

(1) limited resources of imports

The price of phenol offered by Japan and Korean for January is 580 U.S. dollars per ton and the resources are limited. The market price of phenol in Europe and the United States is rising. Phenol producers in the United States plan to increase the market price by 5 U.S. dollars per ton in the first quarter. The 160 000 t/a phenol unit in Spain plans to conduct overhaul in January. The market price of phenol in Europe and the United States will have some rise.

There will therefore be only limited resources of imports in January, and not many distant foreign companies will make offers.

The price of acetone offered by foreign companies in the Far East for January is around 600 U.S. dollars per ton and the resources are limited. The market price of acetone in Europe and the United States is also rising.

The price of acetone offered by companies in Europe and the United States will be maintained at a high level in January, not many distant foreign companies will make offers and the impact from imports on the domestic market will not be great.

(2) seasonal soft demand

With the coming of Spring Festival, downstream enterprises will have a low operating rate and trading companies will be unwilling to build up inventory. The seasonal soft demand will keep the domestic phenol/acetone market at an all time low.

(3) sustained high inventory at producers

The domestic phenol/acetone market is expected to have further downslide in January. The market price in Jiangsu and Zhejiang will drop to 6 200 - 6 490 yuan per ton for phenol and 6 000 - 6 200 yuan per ton for acetone in January.

Ethylene glycol: space for further drop

The price of ethylene glycol in the spot market of South east Asia dropped from 590 - 600 U.S. dollars per ton at the beginning of December to 550 - 570 U.S. dollars per ton at the end of the month, a reduction margin of 6.78%.

The price in the domestic market dropped from 7 400 - 7 500 yuan per ton at the beginning of December to 6 700 -6 900 yuan per ton at the end of the month, a reduction margin of 6.76%. The current price is 6 700 - 6 900 yuan per ton in East China and South China and 6 900 yuan per ton in the north of China. Ethylene glycol producers have all reduced their prices.

Market factor analysis:

(1) The domestic polyester market had a soft demand and a falling price. The demand of ethylene glycol was therefore reduced.

(2) The impact from imports was great. China imported 506 596 tons of ethylene glycol from January to November 1999, a rise of 83.79% over the same period of the previous year. The import amount in November was 68 141 tons, a rise of 91.13% over November of the previous year. The amount imported in the form of general trade accounted for 88%, the amount imported in the form of supplied material accounted for 0.1% and the amount imported in other forms of processing trade accounted for 11.9%. Major source countries and regions included Indonesia, Iran, Japan, Saudi Arabia, Korea, Taiwan, Canada and the United States.

Prospect for January:

(1) The demand of polyester both at home and abroad will continue to drop. Most chemical fiber plants in North Asia will reduce their operating rate in January. The impact produced on polyester units will further reduce the demand of ethylene glycol.

(2) Ethylene glycol from Vancouver of Canada will be delivered on schedule, and there will be more resources in the domestic market.

(3) The 250 000 t/a ethylene glycol unit in Taesan of Korea will not supply spot goods due to production suspension in December.

(4) An ethylene glycol producer in Indonesia suspended production from Dec. 30, 1999 to Jan. 1, 2000 for fear of Y2K.

(5) The price offered by a trading company for 2 000 tons of ethylene glycol to be delivered in January is 580 U.S. dollars per ton (CFR China with 30 days L/C). The price offered by another trading company for 1 000 - 2 000 tons of ethylene glycol to be delivered at the end of January is 590 U.S. dollars per ton (CFR China with 30 days L/C). The price counter-offered by domestic users for 2 000 - 3 000 tons of ethylene glycol to be delivered in January is 550 U.S. dollars per ton (Hong Kong with 120 L/C).

Although the ethylene glycol unit in Taesan of Korea will not supply spot goods and an ethylene glycol unit in Indonesia suspended production for 3 days, great quantities of imports will come from distant sources and the domestic demand will go further down. The ethylene glycol market will therefore have a great pressure and the domestic market price will still make some reduction in January.

Pure benzene: resource shortage and rising price

The domestic pure benzene market still had limited resources in December 1999 and the market price was maintained at a relatively high level. The market price at the end of December was 3 100 -3 200 yuan per ton, equal to the price at the end of November.

Market factor analysis:

(1) firm price in the Asian market

The price hike of crude oil and naphtha in the international market caused a sustained small margin price rise of pure benzene in the Asian market. The price in Taiwan at the end of December was 325 - 335 U.S. dollars per ton (CFR), a rise of 8.3% over the price at the end of November.

(2) brisk sales and price rise in the domestic market

Prospect for January:

The domestic pure benzene market will only have a limited space for price rise in January. First of all, the price uncertainty of crude oil in the international market will bring uncertain factors to the market. And then, in spite of no inventory pressure with producers, the recent price rise of pure benzene has already made downstream enterprise hard to bear. Besides, the demand will be slack at the beginning of the new year. The price of pure benzene will therefore be maintained at the current level and no big fluctuations are expected.

PTA: slack season and falling price

The market price of PTA in Jiangsu and Zhejiang dropped from 6 000 - 6 100 yuan per ton at the beginning of December to around 5 900 yuan per ton at the end of the month, a reduction margin of 1.7%. The current market price is 5 900 yuan per ton in East China and South China and 5 800 yuan per ton in the north of China.

Market factor analysis:

(1) capacity excess and price drop of raw materials

Resources of p-xylene were abundant but the demand was soft in Asia. The 2-week production suspension of the isomerized xylene unit in an oil refinery of Thailand due for a big fire and the accidental shutdown of a 350 000 t/a unit in Singapore failed to bring the price of p-xylene down. The capacity expansion in the three 467 000 t/a production lines in India and the 450 000 t/a unit in Malaysia made resources in excess in Asia. The price of spot p-xylene in the Asian market dropped from 405 - 420 U.S. dollars per ton at the beginning of December to 395 - 415 U.S. dollars per ton at the end of the month, a reduction margin of 4.9%.

(2) reduced demand

The soft demand of polyester both at home and abroad reduced the demand and price of PTA.

(3) impact from imports

China imported 1.38 million tons of PTA from January to November 1999, a rise of 123.39% over the same period of the previous year. In the import made in November, the amount imported in the form of general trade accounted for 87.5% and the amount imported in the form of supplied material accounted for 12.5%. Major source countries and regions included Korea, Japan, Taiwan, Indonesia, Malaysia, Pakistan and the United States.

Prospect for January:

(1) The coming of Spring Festival will lead to a demand reduction. Quite a few chemical fiber producers in North Asia will have a lower operating rate in January. The impact on the polyester production will bring about a soft demand and sustained price drop of PTA.

(2) The price of PTA offered by foreign companies at the end of December was basically 460 U.S. dollars per ton. The price for goods to be delivered in January is still not clear, but is expected to be at the current level.

The market price of PTA will therefore continue to go down both at home and abroad in January. January and February each year are the slack season of PTA and the price in the season is the lowest. Some domestic polyester producers may buy PTA for use in later days. The domestic market price of PTA will therefore still be low in January and February.