The CFR China phthalic anhydride market has plunged to a three-year low amid weakness in China's real estate market, dragging South East Asian PA prices down with it, market sources said this week.
PA is used to make dyes and is also a key feedstock in dioctyl phthalate or DOP production, which is a softening agent for PVC. As DOP and dyes are used in the construction industry, any decline in building activity is likely to crimp demand for DOP and PA.
The CFR China PA price was assessed at $1,265/mt Thursday, down $35/mt week on week and the lowest level since March 31, 2011, when it was $1,260/mt, Platts data showed.
The CFR South East Asia PA price was assessed at $1,275/mt Thursday, down $50/mt week on week and the lowest since January 20, 2011, when it was $1,265/mt.
The Asian PA market has been on a downturn since late December, but the sharp decline started in early March. CFR China and SE Asia prices have plummeted $85/mt and $100/mt, respectively, since March 1.
The sharp drop reflects jitters in the Chinese real estate market that were exacerbated by the recent insolvency of a property developer in east China's Zhejiang province.
"I think the recent [CFR China] PA trades have hit a bottom because of the lack of certainty over the Chinese economic situation," said a trade source.
HSBC chief economist Hongbin Qu said in a statement Monday that the Chinese government could launch a series of policy measures to stabilize growth including targeted spending on public housing.
HSBC's China Manufacturing Purchasing Managers Index, a gauge of nationwide manufacturing activity, fell to an eight-month low of 48.1 in March, from a final reading of 48.5 in February.
While China is typically a net importer of PA, sources said it has been exporting the product for at least a year due to an oversupply that was also pressuring Southeast Asia prices.
"China is the biggest PA producing country but it is also a traditional importer, so its overseas PA [exports] are an embarrassing situation which the market is finding very difficult," said the first trade source. A PA producer said he was avoiding the Chinese market due to low prices.
"I think right now the new capacity [in China] means buyers don't want to build up inventory," he said. "We have changed our market as buyers can accept higher prices just outside China."
