(ICIS) -- Market participants in Asia are toning down their bullish first-quarter forecasts for propylene oxide (PO) because of the uncertain macroeconomic outlook and worries about oversupply and weaker demand from China, the region's largest PO consuming nation.
Market players originally expected total PO demand in China to grow to above 2.2m tonnes in 2012, up from around 1.85m tonnes in 2011.
However, Asia's demand for PO is expected to drop because global economies are still grappling with substantial downside risks such as laggin GDP growth momentum as well as low business and consumer confidence, while China is still maintaining a prudent monetary policy, despite a recent cut in its bank reserve requirement ratio.
In addition, the tight supply conditions seen in 2011 have eased as operations at key facilities resumed and commercial production at new PO plants, including Dow Chemical's 390,000 tonne/year PO unit in Thailand have started successfully.
As a result, total PO imports to China rose to 41,437 tonnes in November 2011. The figure is a 69% month on month increase and an almost three-fold rise from the previous quarter. A similar trend is expected for December, but customs statistics are not yet available.
The increase in supply exerted downward pressure on the spot PO market, causing prices to fall by as much as USD 400/tonne (EUR 312/tonne) within weeks in December 2011, ICIS data showed.
In December, PO prices dropped to a one-year low of USD 1,500/tonne CFR China, according to ICIS data, narrowly breaching what market players said was the breakeven level for many producers, before rebounding to USD 1,600/tonne in end-2011 on the back of pre-holiday restocking activity.
Asian PO prices are likely to remain at above USD 1,600/tonne CFR China this year, as they did in 2011, industry sources said.
However, there will be price deviations of around USD 100-300/tonne this year, corresponding with changes in market sentiment and the demand-supply balance.
Spot PO prices fluctuated at a wider USD 300-500/tonne range in 2011 because of tight supply and rose to above USD 2,000/tonne in the aftermath of the March earthquake in Japan, as market players panicked when regional supply chains were disrupted.