Asia monitor: Prices slide, tracking crude oil

19 May 2003 00:00  [Source: ICB]

The rapid military campaign in Iraq, additional Saudi Arabian supplies and renewed output from Venezuela led to a steep decline in crude oil prices by early April, which prompted a slide in basic petrochemical prices. The Sars outbreak undermined markets further

Asian markets spiked, tracking the sharp crude oil rise in February and March, during the build-up to war in Iraq. The front month Nymex WTI crude futures contract rose from around $32-33/bbl in early February, to $37-38/bbl in early March, on concerns of disruption to Middle East supplies. However, crude prices started to tumble before the outbreak of war and slid to around $28-29/bbl in late March. The rapid military campaign in Iraq, additional Saudi Arabian supplies, and renewed output from Venezuela, contributed to a steep price decline from end-March into April. The downward energy correction prompted a swift slide in basic petrochemical prices. The impact of Severe Acute Respiratory Syndrome (Sars) on regional economies and business confidence put further pressure on prices in May.

Ethylene surged to $660/ tonne CFR NE Asia in mid-February, only to halve in value to $330/tonne by May. Drivers included volatile feedstock costs before and after the conflict in Iraq. Naphtha hit twelve-year highs, in the $370s/tonne CFR Japan end-February, only to drop to $215/tonne by mid-May. Several scheduled and unscheduled outages in February and March also tightened supply and fuelled the price increase. As polyethylene (PE) markets slowed, however, integrated producers began to prioritise monomer sales. This move, uncertainty over the war, signs of weakening PE and styrene by mid-March, and sliding naphtha, undermined ethylene, which dropped close to $500/tonne CFR NE Asia by mid-March. Traders began short selling as crackers returned from maintenance, and the Sars outbreak further undermined downstream confidence. Crackers trimmed output by late April but failed to prevent a price collapse. Prices plummeted to $325-350/tonne CFR by early May.

Supply constraints, stronger polypropylene (PP) markets, the threat of war and bullish naphtha boosted propylene to the high $600s/tonne CFR NE Asia in mid-February. Scheduled and unscheduled cracker outages tightened regional supply throughout March. Arbitrage traffic thinned as high US prices deterred exports. As Chinese domestic PP prices began to slide end-February and naphtha dropped following the outbreak of war in Iraq, propylene fell to the low $600s/tonne CFR NE Asia by late March, and to $500/tonne CFR NE Asia by mid-April. Reduced downstream operating rates and an unexpected outage at a Korean acrylonitrile plant at the end of April forced over 30000 tonne of propylene into the market. Prices fell to the low $400s/tonne fob Korea. Cracker rate cuts and problems in Japan early May prompted sellers to talk prices back towards $500/tonne CFR NE Asia.

Volatile energy, bulging inventories, added production capacity and waning demand from styrene adversely impacted benzene between February and May. Spot values declined from $560/tonne fob Korea in mid-February to $310/tonne fob Korea in mid-May. A recovery during this period was thwarted by weak styrene production cutbacks. Benzene buying interest declined, particularly in China. Many participants concentrated on deep-sea transactions between the US and Asia.

Toluene prices fell sharply, from $500/tonne fob Korea in mid-February, to $290/tonne fob Korea in May. Weak downstream markets, coupled with volatile crude and rising inventory levels, especially in China, put downward pressure on toluene throughout this period. Suppliers were hopeful that the startup of a toluene-based para-xylene unit in Korea would restore balance in April. However, the effects were not immediately felt, given the plentiful supplies.

Highly unstable market fundamentals eroded mixed xylenes prices between mid-February and mid-May. A key bearish factor was the extremely volatile crude oil pricing. In addition, the steady decline in paraxylene and PTA values hampered the reversal of the isomer xylene price trend. High inventories and weak regional demand further dampened sentiment. Isomer grade xylene values declined from $490/tonne fob Korea in mid-February to $310/tonne fob Korea in mid-May, while solvent grade fell from $485/tonne fob Korea to $305/tonne fob Korea.

Styrene prices slumped between February and May. Prices plunged from $850/tonne fob Korea in mid-February, to $490/ tonne fob Korea by mid-May. Extremely weak conditions in polystyrene (PS), ABS and EPS markets resulted in mounting inventories, which in turn dampened buying interest. Lower benzene prices also weighed on styrene, while the Sars scare undermined downstream confidence. Many styrene producers in China, Japan, Taiwan, Korea and Malaysia decided to reduce output or extend maintenance in order to manage the influx of product.

Paraxylene's (PX) meteoric rise between November 2002 and January 2003 was matched by an equally dramatic fall between February and May. Surging energy values and bullish European trades had catapulted Asian prices to over $900/tonne fob Korea in late January. Although sellers had hoped that the commissioning of new PTA plants would support prices, war in Iraq and the related crude price slide coincided with a drastic drop in China's PTA demand, and hastened the PX market collapse. Throughout March, Chinese polyester producers slashed output. PTA values nose-dived, dragging PX prices down to $700-720/tonne fob Korea in late March. Tracking plummeting European indications, PX plunged in early April to $520-550/tonne fob Korea, before sliding to $420-440/tonne fob Korea in May.

Robust energy and phthalic anhydride (PA) values had propelled orthoxylene (OX) prices to peak around $680/tonne CFR NE Asia in mid-February. Weakening PA in late February, however, dragged OX down to $630-650/tonne by mid-March. Deteriorating PA demand, prompted suppliers in China, India, and Indonesia to reduce output in April. In early April, OX plunged to $480-500/tonne CFR NE Asia, tracking falling mixed xylenes and PA values. By early May, Chinese buy indications were down to the mid-$300s/tonne CFR.

 

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