Tight Spot Flow and Cost Pressure Surges Chinese Epichlorohydrin Market

The Chinese Epichlorohydrin (ECH) market experienced a price hike in early February 2024, continuing the upward trend from the previous month. However, unlike previous surges driven by cost pressures, this increase was primarily fueled by a tight spot flow of Epichlorohydrin due to the low working production capacity of feedstock Propylene despite the weak demand from the downstream epoxy resin market.

At the beginning of February 2024 itself, the market of Epichlorohydrin in China continuously persisted in the uptrend following the previous market trend to settle at USD 1260/ tonne Epichlorohydrin FOB Ningbo during 2nd February 2024. Low production capacity utilization was one of the major drivers for this uptrend. At around 50%, most manufacturers were prioritizing fulfilling existing contracts, leaving limited supplies available on the spot market, and encouraging price increases. Furthermore, several maintenance shutdowns of the feedstock Propylene plants have created a tight spot flow in the Chinese market as the temporary closures in key production regions like Jiangsu, Zhejiang, and Shandong further restrict access for importing countries. Henceforth, the limited availability of the feedstock propylene directly impacted the production costs of Epichlorohydrin during this timeframe. As a ripple effect, manufacturers have raised the quotations which eventually surged the prices of Epichlorohydrin in China to maintain their profit margins. While the feedstock glycerol prices improved somewhat, there was no significant influence on Epichlorohydrin pricing in China.

In terms of demand, few downstream adjustments have been made by the major market players. Despite cost pressures, demand for Epichlorohydrin remained lackluster, creating a disconnect between production costs and market willingness to pay as the downstream industries adjust their prices to reflect the higher input costs. As per the data, the amount of cement exported nationally was 3.1045 million tons, a 28.1% reduction from December. Moreover, 1.09 million tons of infrastructure cement were directly supplied in January, a 33.5% reduction from the previous month further depicting subdued demand in the construction sector. Despite the muted demand from the downstream construction segment, the market of Epichlorohydrin was showing a continuous bullish trend on the back of market adjustments.

As per ChemAnalyst, the market in Epichlorohydrin in the upcoming weeks is expected to further surge amidst ongoing supply curtailments of feedstock Propylene plants. This situation presents a challenge to the market's ability to sustain the price hike. While cost pressures are real, the long-term sustainability depends on downstream demand recovery. However, the future trajectory of Epichlorohydrin prices hinges on whether demand rises to meet the current cost structure and tighter supply.