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Jun IIR Operating Rate to Drop

SCI99

2023-06-07

Jun IIR Operating Rate to Drop

As the 45kt/a unit at Sinopec Yanshan Petrochemical Company and the 70kt/a unit at Shandong Chambroad Sinopoly New Material resumed production, the operating rate of China’s domestic IIR units was pushed up by about 14% M-O-M to 66.02% in May. The IIR operating rate is expected to drop in the short term, but the overall supply is envisaged to be sufficient.

IIR Operating Rate

In May, the operating rate of China’s domestic IIR units was 66.02%, up 14% M-O-M but down 17.4% Y-O-Y. The M-O-M increase in the operating rate was credited to the restart of the 45kt/a unit at Sinopec Yanshan Petrochemical Company and the 70kt/a unit at Shandong Chambroad Sinopoly New Material. It is estimated that the IIR operating rate will be about 60% in June, down 6% M-O-M, which is attributed to the expected shutdown of the 50kt/a unit at Shandong Chambroad Sinopoly New Material.

How will the market change amid operating rate cut?

According to producers’ production schedule, units at Sinopec Yanshan Petrochemical Company, Zhejiang Cenway New Materials, Panjin Cenway New Materials and the 70kt/a unit at Shandong Chambroad Sinopoly New Material will maintain stable production in June, while the 50kt/a unit at Shandong Chambroad Sinopoly New Material will be overhauled. At present, strong supply and weak demand embody the market pattern, resulting in sluggish market prices. Although the overall operating rate of domestic units is lower than that in the same period last year, with the help of import growth, the overall market inventory is ample. At the same time, demand from many downstream industries is in the doldrums given the less-than-expected end demand. The pharmaceutical industry demand is favorable, but it contributes limited to the IIR demand growth. What’s more, the downstream tire industry may cut production during the traditional slack season of demand. The demand doldrums will be the major factor holding back the market price. However, in light of the low level of profit, domestic IIR producers’ price decreases may be restricted by costs. As for imports, Russia is the largest trading partner of China’s IIR imports. From January to April, China imported 49kt of IIR from Russia, accounting for 60% of China’s total import volume of IIR. With sluggish demand and sufficient supply, the market competition heats up, and some middlemen and traders are expected to cut prices to keep up the pace of sales.

In the short term, the IIR market weakness will continue unabated. It may be difficult for the cost side to support the market, and attention should be paid to the demand changes. What’s more, given the RMB exchange rate shift, the cost of importing resources will increase, lending support to the domestic spot price. However, it may fail to make substantial improvements amid demand doldrums.

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