FocusEconomic uncertainties cloud Asia petrochemical sector outlook

07 May 2013 06:41  [Source: ICIS news]

By Nurluqman Suratman

container port in Hong KongSINGAPORE (ICIS)--Demand recovery for petrochemicals in Asia remains uncertain as fragile economic conditions in the US and the eurozone continue to drag down growth in the key China market, industry sources said on Tuesday.

Manufacturing activities in China have been weakening, turning in a Purchasing Managers’ Index (PMI) reading of 50.6 points in April, down from 50.9 in March, mainly on weak export orders. 

The PMI reading of the world's second biggest economy and major importer of petrochemicals in Asia is barely above the 50 threshold that indicates expansion.

“The slower growth of manufacturing activities in April confirmed a fragile growth recovery of the Chinese economy as external demand deteriorated and renewed destocking pressures built up,” said Hongbin Qu, chief economist for China and co-head of Asian Economic Research at HSBC.

“The looming deflationary pressures also suggest softer overall demand conditions. All this is likely to weigh on the labour market, which is  likely to invite more policy responses in the coming months,” Qu added.

China’s economic growth slowed down to 7.7% in the first quarter from a 7.9% clip posted in the last three months of 2012.

The downbeat economic data from the key China market in April have sparked concerns over weakening plastics demand and weighed on the upstream naphtha market, which is expected to be saddled with oversupply, industry sources said.

Over half-a-million tonnes of deep-sea naphtha supply is booked for Asia, with deliveries expected in June. Asia is poised to receive 1.0m-1.1m tonnes of deep-sea naphtha in May, which includes around 300,000 tonnes of US arbitrage naphtha material.

More arbitrage fixtures are expected over the next few weeks, as cracker maintenance in Europe will lead to more naphtha supply available for Asian customers.

Naphtha and crude prices slumped in April, triggering price adjustments down the petrochemical chain, industry sources said.

In the olefins market, prices went on a correction phase, partly on weakness in demand for derivative petrochemicals from the key China market.

Demand for polyethylene (PE) and polypropylene (PP) is also slowing down in South Asia despite lower-priced deals and offers. End-users are unwilling to risk buying new material in May as they anticipate further price declines. 

Polymer suppliers worry about profitability being severely hit if prices continued to fall in the coming weeks. But they expect sales to pick up ahead of Ramadan, the Muslim fasting month that starts in early July and are not cutting run rates at plants.

In the synthetic rubber market, demand remains relatively sluggish because of the slowing Chinese economy. The country is the world’s biggest automotive market.

A sharp rebound in the prices of styrene butadiene rubber (SBR) and butadiene rubber (BR) prices are being ruled out, but prices may find support in the firm values of feedstock butadiene (BD), industry sources said.

For styrenics resins, demand has also been poor as exports of finished goods to the US and the eurozone are in doldrums, keeping demand for feedstock styrene weak.

“Demand for resins is likely to stay weak in May and June and could possibly pick up in July,” said a Hong Kong-based resins trader.

In the epichlorohydrin (ECH) market, producers are being forced to increase prices amid higher costs and squeezed margins, while in the epoxy resins market, stiff competition is prompting sellers to bring down offers to retain market share.

($1 = €0.76)

Additional reporting by Muhamad Fadhil, Peh Soo Hwee, Clive Ong, Helen Yan, Hazel Goh and Felicia Loo

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Nurluqman Suratman

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