Asia petrochemical shares, prices drop as recession fears heighten

23 September 2011 08:55  [Source: ICIS news]

By Nurluqman Suratman and Pearl Bantillo

SINGAPORE (ICIS)--Asian petrochemical shares declined on Friday along with product prices, following heavy sell-offs in the equities and commodities markets overnight on heightened concerns that the global economy is heading towards another recession.

Markets are on their second day of rout, following the US Federal Reserve’s comment that the US – the biggest economy in the world – faces “significant downside risks”.

Asia’s stock markets are reacting on Friday to the 3.51% decline in the Dow Jones Industrial Average overnight.

At 13:29 hours Singapore time (06:29 hours GMT), South Korean producer LG Chem was down by 5.07%, SK Innovation declined by 6.96% and Honam Petrochemical fell by 6.19% as the KOSPI composite index dropped by 5.56% to 1,700.47.

Japanese markets are closed on Friday for a public holiday.

In Malaysia, PETRONAS Chemicals Group was down by 1.08%, with the FTSE Bursa Malaysia down by 1.11% at 1,372.37.

Thailand’s petrochemical major PTT Chemical was down by 5.99%, while Siam Cement Group fell by 4.41%. The Thai SET index fell by 4.30% at 947.98.

In Hong Kong, PetroChina was down by 0.77%, while the benchmark Hang Seng index fell by 2.18% to 17,521.89.

“Needless to say, market sentiment is at its most fragile since the Lehman crisis,” Singapore-based DBS Bank Research said in a note.

US investment bank Lehman Brothers collapsed in September 2008, triggering a global credit crunch and the worst recession the world had seen in decades.

Meetings of global leaders started on Friday to address the growing unease over the health of the economy.

“More than ever, markets now need to see global leaders holding each other’s hands and not pointing fingers at each other to help restore the stability to global financial markets and return the world to its recovery path,” DBS Bank said.

“The immediate task is to affirm global cooperation to support Europe’s efforts to prevent the debt crisis from breaking up the euro,” the note said.

The prices of petrochemical products in Asia are softer on Friday, following heavy falls in crude prices overnight.

NYMEX crude and Brent crude declined by about $5/bbl on 22 September as a rout in global equity markets saw a strengthening of the US dollar, which made dollar-denominated commodities less attractive to investors amid an uncertain economy.

On Friday, NYMEX crude for delivery in November was trading at close to $81/bbl, while BRENT crude was quoted at above $106/bbl.

Naphtha prices in Asia fell to a six-week low in early trade on Friday to $909.25-912.25/tonne (€672.85-675.10/tonne) CFR (cost & freight) Japan, down by $13.25-15.25/tonne from 22 September.

Spot benzene prices declined by $40-45/tonne on Friday morning to a nine-month low of $1,000-1,010/tonne FOB (free on board) Korea, market sources said.

Trades for styrene monomer (SM) were also affected, with prices falling by $125/tonne to $1,375/tonne CFR (cost & freight) China, traders said.

“Buyers [of SM] are staying away [because they are expecting] lower prices”, a South Korean trader said.

SM offers for November at around $1,375/tonne CFR China represents a complete erosion of gains made this year, according to ICIS data.

In the monoethylene glycol (MEG) market, spot offers fell by $20/tonne to $1,280/tonne CFR CMP (China Main Port) on Friday morning, but attracted no buyers, the traders said.

“The market outlook is too uncertain, that is why no buyers are willing to buy as they are worried prices will continue to drop next week,” a Chinese trader said.

Preliminary data on the manufacturing sector in China, the world’s second largest economy, has heightened concerns of an impending recession.

HSBC’s China Manufacturing Purchasing Index showed a contraction, with the index falling below the 50% threshold.

Asia is vulnerable to the US economic troubles and the eurozone’s debt woes because of the region’s export-oriented economy.

($1 = €0.74)

Additional reporting by Felicia Loo, Mahua Chakravarty, Clive Ong, Trisha Huang and Judith Wang

By: Nurluqman Suratman & Pearl Bantillo
+65 6780 4359

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