FocusChina demand, US stimulus to fuel Asia petchems’ bull run

16 November 2010 07:34  [Source: ICIS news]

By Felicia Loo

SINGAPORE (ICIS)--Asia’s petrochemicals are poised for a bull run in 2011, on the back of voracious Chinese demand and the latest US fiscal stimulus measures which have boosted commodity prices, analysts and market players said on Tuesday.

China, which expanded at 9.6% in the third quarter, scaled back on olefin imports this year due to massive new capacity additions from state-oil petrochemical giant Sinopec in Tianjin and Zhenhai but the overall sentiment remained bullish, with exports in October jumping 22.9% year on year to $135.98bn while its imports were up 25.3% to $108.83bn.

Demand from China had already propelled some petrochemical prices, traders said, adding that fuelling this positive outlook was the quantitative easing (QE2) policy in the US to boost domestic consumption, flushing markets with more dollars.

The announcement of the fresh economic stimulus of $600bn (€438bn) in the US triggered price spikes for commodities such as oil and naphtha.

Asia naphtha prices hit a two-year high of more than $800/tonne as US crude futures soared to a 25-month high of nearly $89/bbl last week, ICIS data showed.

“We are positive on the [petrochemical] outlook in 2011 amid sky-high cotton and rubber prices, making PE [polyethylene], PP [polypropylene] and synthetics more appealing,” said Gordon Kwan, head of regional energy research at Mirae Asset Securities in Hong Kong.

Spot PE prices in China rose to $1,650-1,700/tonne CFR (cost & freight) China in the week ended 12 November because of skyrocketing linear low density polyethylene (LLDPE) futures, ICIS data indicated.

The country has been the world’s biggest PE consumer since 2009.

“With most of the QE2 liquidity likely to rush over to Asia, many countries have set up capital inflow barriers to prevent the repeat of the 1997 financial crisis, thus leaving the commodity space the only viable outlet for this hot money,” said Kwan of Mirae Asset Securities.

The fresh stimulus of $600b was equivalent to boosting global oil demand by a whopping 22%, Kwan added.

“This will have positive repercussions all the way down the value chain to the chemicals segment. We are bullish on the entire energy complex in 2011, from upstream E&P [exploration & production] to refining and to petrochemicals, as global economic recovery resumes,” he said.

The weak US dollar continued to fuel higher oleochemicals prices as sellers sought to recoup lost margins from foreign exchange losses, traders said.

Oil consumption in China is expected to grow at a strong pace, backed by superior economic growth, and firming up the country’s ranking as the world’s top energy consumer as defined by the International Energy Agency.

With an oil supply crunch in China, Chinese trader Unipec – the trading arm of Asia’s top refiner Sinopec Corp – bought a hefty 150,000 tonnes of naphtha for delivery in the first half of December for its crackers, which are mostly running at full capacity.

Chinese refineries across the country are desperately trying to churn out diesel to meet a surge in diesel-fired power generation demand as winter sets in, traders said.

“As a result, less naphtha supply is available,” one trader said.

“It is a bullish market. The feel is bullish and everything is bullish,” a Chinese polymers trader said.

($1 = €0.73)

Additional reporting by Serena Seng

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By: Felicia Loo

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