Asia petrochemical exports to take hit if US defaults on debt

26 July 2011 10:16  [Source: ICIS news]

US debt ceiling worries will stoke further worries on another global recessionBy Nurluqman Suratman

SINGAPORE (ICIS)--Asian petrochemical producers can expect a weakening of exports if the US - the world’s biggest economy - were to default on its debts, analysts said on Tuesday.

However, the negative impact will likely be mitigated by the strength of demand coming from China and other emerging markets, they added.

The US needs a higher national borrowing ceiling via legislation by 2 August to prevent it from defaulting on its debts. However, the Republicans and Democrats in the US Congress cannot agree on a plan.

US President Barack Obama warned that a failure on Congress’ part to increase the debt ceiling could cost jobs and potentially cause serious damage to the US economy.

“[Petrochemical] producers who are reliant on the US and Europe markets could face a serious impact on demand, but fortunately most of the Asian players are relying on the China market so the impact will be minor,” said Danny Ho, an analyst at Taiwan-based brokerage Yuanta Securities.

“The end-demand for finished goods should be affected, but emerging markets are growing faster than the American market so demand for Asian companies will not be so bad in the longer term,” Ho said.

Overall consumption from the western industrialised economies will likely remain weak with the US and the eurozone preoccupied with their debt problems, analysts said.

There are also concerns that the debt woes of both the US and eurozone may plunge the world economy back into recession, said Naphat Chantaraserekul, a Bangkok-based petrochemical markets analyst at DBS Vickers Securities.

“If the European debt crisis gets worse, it will definitely have a big impact on Asian players, but in the near term the worries in the US will only have a moderate impact on the olefins and aromatics markets globally,” Chantaraserekul said.

For the time being, Asian demand looks strong enough to absorb the new olefin capacity that is due to come on stream, Chantaraserekul added.

Stock market indices in the region appeared to have shrugged off the US debt issue on Tuesday, with shares of petrochemical companies even rising.

Among petrochemical majors listed in Tokyo, Mitsui Chemicals was up 0.34%, while Mitsubishi Chemical rose by 0.65%. Japan’s benchmark stock market index, the Nikkei 225 was up by 60.77 points, or 0.62%, at 12:06 hours Singapore time (04:06 GMT).

In Seoul, LG Chem rose by 2.43% and SK Innovation was up by 3.37%, while Honam Petrochemical gained 0.97% as the benchmark KOSPI Composite Index inched up 0.37% at 2,158.26 points.

However, Chinese state-owned refiners PetroChina and Sinopec were down by 0.88% and up by 1.69% in Hong Kong, respectively.

Meanwhile, oil prices were stable in early Asian trade on Tuesday with the September West Texas Intermediate (WTI) contract up by $0.28/bbl at $99.48/bbl at 12:40 hours Singapore time, while September Brent was stable at $117.92/bbl.

“Bar a US default, we do not see significant impact on the oil market to the downside. Instead, an agreement over US debt-ceiling and budget could boost the oil market,” a research note by South Africa-based Standard Bank said.

“We believe that the oil flat price remains supported by strong investment demand and abundant dollar liquidity, while refining margins are likely to come under pressure from high refinery runs and soft demand,” the note added.

For more on Mitsui Chemicals and other producers, visit ICIS company intelligence
Please visit the complete ICIS plants and projects database
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Nurluqman Suratman

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