There have been a lot of flakers, said a Singapore-based chemicals trader. I don t know the number, but we heard practically all deals had to be repriced, discounted or diverted.
China Asia s largest importer of propylene appeared to be the hardest hit, with buyers unable or refusing to accept cargoes amid rapidly falling prices.
Several traders are facing a big problem as buyers refuse to open L/C (letter of credit). A shipment which was sold above $1,100/tonne CFR China had to be resold to Taiwan below $700/tonne, said a Shanghai-based olefins trader.
The defaults triggered panic-selling that exacerbated spot price declines, creating a vicious cycle, traders said.
Today I am happy I have sold out, but next week I might have a problem if they walk away, said the same Shanghai-based olefins trader, referring to the high level of uncertainty in the markets amid rapidly falling prices.
Butadiene, which has been the strongest performing light olefin this year, also plunged $400-500/tonne week-on-week in the past month as end-users were heard to have rejected cargoes contracted earlier at a much higher price.
Buyers rejected cargoes contracted earlier at a higher price around $2,800-3,000/tonne CFR NE Asia in a bid to re-negotiate the price, a trader said. Spot butadiene prices have fallen by more than 50% in the past month to around $1,500/tonne CFR NE Asia - and are still falling, traders said.
Besides olefins, other chemical products popularly traded in China also saw liquidity dry up quickly as the number of defaults rose.
Methanol is worse. We heard some distributors just walked away from the opening bank and some banks are straddled with product now, said the same Singapore-based chemicals trader.
Some methanol sellers even went as far as to only accept deals which had immediate cash payments for a cargo due to the rising rate of defaults. It was widely rumoured that some financing companies in southern China were stuck with cargoes after the traders defaulted.
Many were afraid efforts by these financial institutions to liquidate these stocks at distressed prices in order to gain some returns would lead to further decline in Chinese methanol prices, market sources said.
I heard from others that banks had repossessed about 100,000 tonnes (of methanol) in total from traders unable to make payments. There can be a large sell-off expected once these companies cannot hold up anymore, a China-based trader said in Mandarin.
Idle factory lines and slowing export orders also had a significant impact on polymer resin imports into China, which is the world s largest importer of polyethylene (PE) and polypropylene (PP).
Regional PE producers saddled with high stocks and facing daily falling prices agreed to revise previous transactions closed above $1,400/tonne CFR China, adjusting prices down to $1,050-1,250/tonne CFR China, a trader in south China said.
A global PP maker said it had become more cautious as the risk of payment defaults had increased markedly after the global financial crisis unfolded. The seller used to accept L/Cs issued by the top 1,000 international banks but was now more selective and had narrowed its choices to a few banks in the respective markets that it sells to, the producer said.
Other resins such as polystyrene (PS) and expandable (E) PS in the key Chinese market had not been spared the aftershocks of the global economic downturn, resulting in production cuts and cancellations of feedstock styrene monomer deliveries.
Several PS and EPS makers had partially cancelled October contracts of feedstock styrene monomer as sales had been dismal, said a Taiwanese resin producer.
Market players are all expected to tread more cautiously and avoid bargain hunting for the time being.
I plan to do nothing till end of this year and close shop. I did not get hit and do not want to be smart, said another Singapore-based trader who believes this situation could drag on for another few months.