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Falling China demand forces PA producers to look for new markets Singapore, April 15, 2014

Additional media contact: Elizabeth Catalano at elizabeth.catalano@platts.com or +44 207 176 6024.

Falling China demand forces PA producers to look for new markets • Persistent low demand in China is forcing Asian

phthalic anhydride producers to look for new markets and end-users, market sources said March 27.

• Asian PA prices averaged $1,369/mt CFR China in the first quarter of 2014, down 9% Q1 2013, Platts data showed. PA prices had averaged $1,502/mt CFR China in Q1 2013.

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PA demand in China falls

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PA demand in China falls (cont..)

• Orthoxylene, which is a feedstock for PA, averaged $1,308/mt in Q1 2014 down $272/mt or 17% year on year.

• The PA/OX spread averaged at $61/mt in Q1 2014 as compared to $78/mt in Q1 2013, data showed.

• On March 27, Platts assessed the PA markers at $1,265/mt CFR China, down $35/mt week on week, and at $1,275/mt CFR Southeast Asia, down $50/mt week on week.

• Offers for PA were heard at $1,290/mt FOB Korea this week but producers continued to rue about low demand.

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Other Asian producers running at near capacity

• "Not only have the PA prices come down over the past one year it is becoming uneconomical to produce it considering the consistently sliding margin," a South Korean producer said.

• Major producers in South Korea and Taiwan like Hanwha, Aekyung and Nan Ya were still heard running their plants at near full capacity this week even as those in China were heard running their plants at 60-70% of capacity.

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Downstream DOP demand seen falling sharply in China

• More than 50% of Asian PA still goes into making dioctyl phthalate.

• But as DOP demand has been dropping amid opposition from environmental groups, "producers are gradually shifting to the production of other plasticizers like DOTP [dioctyl terephthalate] and DINP [Di-isononyl phthalate] as these are considered safer to use," another South Korean producer said.

• DOP prices averaged $1,537/mt in Q1 2014, down $214/mt, or 12%, year on year from an average of $1,751/mt.

• "DOP is a dying product as several converters in China who manufacture products for the European and US export markets don't use it anymore," a Chinese DOP producer said.

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Chinese PA import figures slid sharply

• The strategy to win customers by offering products at lower prices has also not worked in China.

• "South Korea-origin PA is often offered into China on a CFR basis at the same price as FOB Korea, but there are still no takers. Most of the Asian producers are only meeting their contract commitments in China," a Chinese trader said.

• The falling demand for PA is best represented in Chinese PA import figures that have slid sharply over the first two months of 2014.

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China’s economy expected to grow at a lesser rate in 2014

• "DOP demand and prices take an immediate hit from the predictions of a lower growth rate in China and low Purchasing Managers' Index figures published monthly," a Chinese trader said. "Occasional curbs on the banking market also impact DOP demand."

• In mixed Chinese industrial data, the HSBC-Markit China Purchasing Managers' Index fell to 48 in March from 48.5 in February, according to data released April 1.

• A separate PMI published by the Chinese government edged up to 50.3 in March from 50.2 in February. The country's economy grew at a rate of 7.75% in 2013 but is expected to grow at lesser rates in 2014 and 2015 according to the International Monetary Fund.

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China imports of PA down almost 45%

• China imported 9,085 mt of PA in January and February down almost 45% year on year from a similar period in 2013.

• "DOP demand and prices take an immediate hit from the predictions of a lower growth rate in China and low Purchasing Managers' Index figures published monthly," a Chinese trader said. "Occasional curbs on the banking market also impact DOP demand."

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China Purchasing Managers' Index fell to 48 in March

• In mixed Chinese industrial data, the HSBC-Markit China Purchasing Managers' Index fell to 48 in March from 48.5 in February, according to data released April 1.

• A separate PMI published by the Chinese government edged up to 50.3 in March from 50.2 in February. The country's economy grew at a rate of 7.75% in 2013 but is expected to grow at lesser rates in 2014 and 2015 according to the International Monetary Fund.

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• With demand for PA from China falling rapidly, Asian

producers have looked to increase exports to other markets -- mainly India and South America, said sources.

• "We are finding new customers in places like the Middle East, India, Southeast Asia and South America as demand in China has been dropping," a South Korean producer said.

• In India, a major volume of PA goes into making of paints and dyes.

• But here also producers are facing problems as the country has imposed an anti-dumping duty of $94/mt on PA imports.

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Asian producers looking to other markets to export PA

India considered a viable destination for PA • Two local producers -- IG Petrochemicals and

Thirumalai -- have repeatedly petitioned the government to protect their interests which led to the imposition of the duties, said sources.

• "As demand for PA in China came down, India was considered a viable destination for Asian origin PA. Producers in South Korea tried to sell huge volume of products into India at a loss to win customers," a Mumbai-based trader said.

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