Asia petrochemicals tumble on crude losses; market players wary

Pearl Bantillo

15-Oct-2014

Crude Oil ProductionFocus story by Pearl Bantillo

SINGAPORE (ICIS)–Asia’s petrochemical markets are being battered on Wednesday following hefty losses in crude futures, with most market players wary that commodities prices will keep falling in the near term amid global economic weakness.

At midday, NYMEX light sweet crude for November delivery was trading slightly higher at $82.08/bbl after tumbling nearly $4/bbl overnight.

Crude prices slumped at the close of trade on Tuesday to $81.84/bbl after the International Energy Agency (IEA) cut its oil demand forecast for 2014 and 2015, while reporting that global oil supplies in September increased a huge 2.8m bbl/day year on year.

Oil prices have been on a downward spiral as concerns over weakening global demand heightened following cuts in growth forecasts by the International Monetary Fund (IMF) on 7 October, affecting sentiment in the overall petrochemical markets.

Naphtha and aromatics markets are particularly susceptible to the apparent free-fall in crude prices.

At midday, open-spec second-half November naphtha prices fell $23.50-24.50/tonne to $715.50-718.50/tonne CFR Japan.

Benzene shed $35/tonne to $1,060-1,065/tonne FOB (free on board) Korea, while toluene fell $22-23/tonne to $932-939/tonne FOB Korea at noon.

Styrene monomer (SM) prices, meanwhile, fell below $1,400/tonne CFR (cost and freight) China for December cargoes this week, with talk of a deal done at $1,380/tonne, market sources said.

November SM parcels were discussed at around $1,400/tonne CFR China.

On 10 October, spot SM prices were assessed at $1,495-1,510/tonne CFR China, according to ICIS data.

Market players expect SM prices to continue falling, dragged down by weak energy futures and benzene prices.

Most buyers in the polyester chain took to the sidelines, adopting a cautious stance amid declining prices in the upstream markets, market participants said.

Purchases were mainly done on a need-to basis, as majority of buyers are expecting prices to fall further given prevailing weakness in the global macroeconomic conditions, they said.

The global economy is projected to grow at a slower pace of 3.3% this year and at a 3.8% pace in 2015, according to the IMF  – a global financial stability watchdog.

The IMF pointed to stagnation and low potential growth in advanced economies and a decline in potential growth in emerging markets as medium-term risks to global growth.

Sources in the petrochemical industry warned of a build-up in inventory, particularly for purified terephthalic acid (PTA), with not much improvement in downstream demand.

“An oversupplied PTA market, together with a bearish upstream market might continue to add a downward pressure on spot prices,” a Chinese trader said.

Further downstream, the nylon chip market is also feeling indirect pressure from slumping crude prices. Market players are taking a wait-and-see stance because of tumbling prices of benzene and capro in the Chinese domestic market.

Although buyers have low stocks on hand, purchases of nylon chips are being limited to small quantities given expectations that prices will continue to fall. They would not want to be caught holding on to stockpiles of high-priced cargoes at their warehouses, industry sources said.

On 14 October, nylon chip prices fell by $50-60/tonnes week on week to $2,400-2,440/tonne CFR China, according to ICIS data.

In the olefins markets, butadiene (BD) prices tumbled on Wednesday, with offers tumbling to $1,200-1,250/tonne CFR NE Asia, as the sharp fall in crude prices sent traders scrambling to offload stocks.

“Demand is falling while supply is ample. And with crude prices so weak, buying ideas for BD have fallen to around $1,150/tonne CFR NE Asia,” a downstream synthetic rubber producer said.

Ethylene and propylene prices, on the other hand, held steady at midday.

Selling ideas for ethylene were mainly at least in the low-$1,400/tonne CFR NE Asia levels, against buying ideas largely below $1,400/tonne CFR NE Asia.

For propylene, selling ideas of $1,315-1,320/tonne CFR NE Asia for November-arrival drew limited buying interest.

Additional reporting by Ong Sheau Ling, Helen Yan, Clive Ong, Tahir Ikram, Felicia Loo, James Dennis, Yeow Pei Lin, Daphne Ho and Samuel  Wong

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

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