FocusAsia petchems shrug off historic crude gain

23 September 2008 06:40  [Source: ICIS news]

By Bohan Loh

SINGAPORE (ICIS news)--The historic gains in crude prices are not expected to set off a bull run in Asian petrochemicals markets which have been falling amid persistently weak demand and an extremely bearish market, traders and analysts said on Tuesday.

US crude futures for October delivery soared as much as $25.45/bbl during trading session on Monday before settling at $120.92/bbl, $16 higher than the previous day’s close and its biggest single-day gain on record.

At 11:30 local time (03:30 GMT), November NYMEX sweet crude futures were trading at $105.52/bbl, down $0.52/bbl.

"I think the large crude rebound yesterday was a flash in the pan, and it will likely decline a few days later and hover at around $120/bbl in the following months," said Liu Binghong, an oil and oil derivatives analyst from Shanghai-based Dalu Futures.

"We saw increases in oil prices last night but movement in the October contract does not provide much [in terms of] the underlying developments in the oil market," said David Moore, commodity strategist at Commonwealth Bank of Australia.

"The November and December NYMEX contracts, while prices were higher, they were not to the extent of October ones," Moore added.

The supply and demand fundamentals in the petrochemical market did not change and would remain weak for the next six months, on softening demand from the US, China’s largest trade partner, said Liu.

There is also a widespread reluctance to take on new trade positions, he added.

Most industry watchers blamed the oil price spike to speculative play and to uncertainties surrounding the US Federal Reserve’s $700bn (€476bn) bailout plan to solve the crisis engulfing its financial system.

Other industry sources said that the short-lived rebound in crude values had a positive psychological effect on demand but in consensus, they had an uncertain near-to-medium term outlook against the backdrop of a slowing global economy.

A Taiwanese polymer producer said buying enquiries increased slightly as some plastics processors started replenishing depleted stocks on fears that polymer prices might have bottomed due to the strong rebound in crude.

"Enquiries from end-users have increased but the transaction volumes were small because the outlook was still uncertain," a trader in east China said in Mandarin.

Benzene, in reaction to the higher crude values, was already up $20/tonne despite a fundamentally weak market, with bids heard at $1,110-1,115/tonne FOB (free on board) Korea for November loading according to global chemical market intelligence service ICIS pricing.

Traders expected that sentiment would pick up and trading would also gain pace.

($1 = €0.68)

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Judith Wang, Pearl Bantillo, Chow Bee Lin and Mahua Chakravarty contributed to this article

By: Bohan Loh
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