Asia petchem markets largely depressed on weak China demand

Focus story by Pearl Bantillo

SINGAPORE (ICIS)–Spot prices of most petrochemicals in Asia have been under pressure by weaker-than-expected demand in the third quarter, as China continues to grapple with economic weakness, industry sources said on Monday.

Industrial activities in China typically strengthen in July to September, boding well for petrochemical demand, as the country gears up production for exports, which pick up towards yearend, market players said.

But this year, the peak manufacturing season for exports was shorter and the improvement in demand was largely tepid, they said.

China, the world’s second biggest economy and a major importer of petrochemicals in Asia, continued to exhibit economic weakness, with its official purchasing managers’ index (PMI) slipping to 51.1 from 51.7 in July, according to government data released on Monday.

The PMI is a barometer of an economy’s manufacturing activities.

Investment bank HSBC’s August flash PMI for China was at 50.3, barely above the 50 threshold that indicates expansion.

This is partly because demand for Asian goods from the US and eurozone – the region’s major export markets – has remained soft since their economic recovery is still fragile.

China, along with most economies in Asia, has a strong reliance on exports for growth.

“Volume of orders for finished goods has started to taper off in the first half of August, around a month earlier than previous years,” said a China-based end-user of acrylonitrile-butadiene-styrene (ABS) and polystyrene (PS) resins.

Credit/financing issues afflicting China have also been curtailing trades in the resins market, industry sources said.

“Access to credit for medium to smaller players remained difficult … This has dampened resins trade,” a Hong Kong-based trader said.

Spot ABS fell for the second consecutive week to an average of $1,945/tonne CFR (cost and freight) NE (northeast) Asia on 29 August, down by $30/tonne from mid-August, according to ICIS data.

In the oxo-alcohols market, spot demand  in northeast Asia has been weak despite the approach of the peak season in September-October, with China saddled with oversupply of the material amid weak downstream butyl acetate (butac), butyl acrylate (butyl-A) and plasticizers sectors.

Spot prices of 2-ethylhexanol  (2-EH) exempt from import duty were last assessed at $1,475/tonne CFR East Asia on 29 August, unchanged from the previous week, but down by an average of $35/tonne from the start of the month, according to ICIS data.

Lacklustre demand in this market may continue for the rest of the year, but downside pressure on regional prices may be capped as supply of oxo-alcohols is limited outside China, market sources said.

Southeast Asia-based producers are looking at the Indian market, where sales can generate better netbacks, market sources said.

For high density polyethylene (HDPE) pipe grade, demand from China and southeast Asia has remained lacklustre and may remain so for the rest of the year, market players said.

Spot prices of black HDPE 100 pipe grade in Asia have remained at $1,630/tonne CFR China for eight straight weeks, while those of natural colour HDPE 80 stood at $1,585/tonne CFR China for the whole of August, according to ICIS data.

In the plasticizer market, demand for dioctyl phthalate (DOP) and dioctyl terephthalate (DOTP) improved ahead of schedule in August, but the pick-up has been weaker-than-expected given long supply in the key China market, which used to be a net importer of these products, according to some producers.

DOP spot prices were assessed at $1,485/tonne on 29 August, down by an average of $35/toone from the start of the month, according to ICIS.

With the current weakness in China demand that saw the regional prices of fatty alcohol ethoxylates (FAE) fall to a 10-month low, producers have started to look at the Australian and Turkish markets, while others have decided to focus on producing other types of surfactants at their facilities, industry sources said.

In the case of polymeric methyl di-p-phenylene isocyanate (PMDI) producers, most of them are prepared to reduce sales volumes, rather than reduce their offers .

Linear low density PE (LLDPE) and polypropylene (PP) futures traded at the Dalian Commodity Exchange (DCE) in China have also been under pressure over a possible supply glut, given a slew of new domestic capacities that are due to come on stream this year.

Some 2.2m tonnes in additional PE capacity and 3.5m tonnes of PP capacity are expected to start up in China this year, according to Chemease, an ICIS service in China.

Demand for PP flat yarn and bi-axially oriented PP film for packaging of moon cakes – a pastry traditionally eaten during the Mid-Autumn Festival in China – has not been as strong as expected, according to local market sources.

China will celebrate the Mid-Autumn Festival this year on 8 September, with the Chinese markets expected to be on holiday from 6-8 September.

Additional reporting by Clive Ong, Angeline Soh, Trixie Yap, Doreen Zhao, Hazel Goh and Pui Wing

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