Asia petchems will see some relief in 2010 as economies recover

26 November 2009 06:32  [Source: ICIS news]

By Pearl Bantillo and Judith Wang

Asia petchems to see relief in 2010 as economies recoverSINGAPORE (ICIS news)--Asian petrochemical companies may get a slight reprieve next year with an expected soft rebound in demand as most economies recover from this year’s slump, analysts said on Thursday.

A source of constant concern, however, are the capacity additions that will come on stream in China and the Middle East, despite delays caused by the credit crunch, they said.

“We had a very negative view at the start of the year … because of uncertainty of demand and capacity additions coming in. I don’t think that got away,” said a Singapore-based credit and infrastructure analyst at US ratings firm Standard & Poor’s.

“The view for 2010 still remains quite subdued,” he said.

Petrochemical firms in the region have held up fairly well so far in 2009, considering the circumstance of severely weakened world demand at the start of the year, thanks largely to China’s huge appetite for chemicals, analysts said.

“From some of the issuers [companies] we’ve seen that their performance has been better than expected. Volumes may have not returned adequately, but spread has been quite okay,” said Wong.

Among these companies are the two units of Thai oil and gas giant PTT - Integrated Refinery and Petrochemical Complex (IPRC) and PTT Aromatics - both of which reversed their losses in the third quarter. Chinese petrochemical giant, Sinopec, also showed a sterling performance.

Analysts expected the companies’ financial results in the fourth quarter to match, if not exceed, those in the previous quarter. The September-quarter results showed a substantial improvement from the second for most of these firms.

Possibly flat quarter-on-quarter numbers could be attributed to the usual tapering off in demand in the last three months of the year after manufacturing activities hit a crescendo in September, particularly in China.

But on an annual basis, a more pronounced improvement can be gleaned since demand crashed in the fourth quarter of last year, said Wang Xixin, an analyst at brokerage Guolian Securities based in Wuxi, China.

Strong gains in crude prices from the second half of the year also helped buoy petrochemical product prices, which should translate well in the companies’ financials this quarter, analysts said.

Expectations of global economic recovery this year helped crude to surge from its lowest point of around $30/bbl in December 2008 to hover at the high $70/bbl levels.

At 05:33GMT, NYMEX light sweet crude for January delivery fell 63 cents to $77.33/bbl on Thursday.  

Most analysts expected crude prices to continue gaining strength well into 2010 as the world economy emerges from its deepest recession in decades.

Domestic consumption in China has remained strong, backed by its government’s hefty stimulus package, and should continue driving demand for petrochemicals next year, analysts said.

China is Asia’s biggest importer and consumer of petrochemicals.

The warming up of the downstream housing sector and strong sales of automobiles and home appliances should continue supporting domestic demand, said an analyst at a Shenzhen-based brokerage firm, who declined to be named.

Standard & Poor's Wong said: “The better performance this year was driven by China. Next year’s would continue to be driven by China and any return to fundamental growth [of countries] like Thailand and Malaysia. The [global] economy should start growing again.”

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Please read John Richardson's Asian Chemicals Connection blog

By: Pearl Bantillo
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