Asia petrochemical market pares losses on regional stocks recovery

SINGAPORE (ICIS)–Key petrochemical markets in Asia on Tuesday pared the downtrend seen in the previous day following the dramatic collapse in global equities amid lingering concerns that China’s economy could suffer a sharp slowdown.

Ethylene, propylene, benzene and toluene all recorded falls on Tuesday albeit at a slower pace as compared to Monday’s sharp declines, market sources said.

“The current downturn [in petrochemical markets] is just another blip in the industry when sentiment is overplayed due to the recent rout in Shanghai stocks and further exacerbated by the Yuan devaluation,” said Ewe Ee Foong, ICIS Vice President of Business Development & Consulting.

“And of course, this happened on the back of an already subdued oil prices due the ample supplies notably ex-US if not Iran in the near future,” he said.

“Fundamentally, these are needed long overdue corrections, but the current state of oil prices that are leaning towards $40/bbl may not be sustainable to meet today’s oil demand,” Ee Foong added.

Open-spec naphtha valuations regained some ground lost during the morning, but were still trading below the previous session close.

Naphtha prices rose to $387-389/tonne CFR (cost & freight) Japan in the afternoon trade, compared with $380.50-383.50/tonne CFR Japan earlier in the session but remained below the $399-400/tonne CFR Japan level a day ago.

Naphtha prices rebounded along with global crude futures which were still trading below 6-and-half year lows.

In the olefins market propylene sellers offloaded their cargoes following the rout in the crude and stock markets.

Propylene prices fell on Tuesday to below $750/tonne CFR NE (northeast) Asia for September shipments, down from last Friday’s level at $800-830/tonne CFR NE Asia.

Ethylene buyers indicated $800-850/tonne CFR NE Asia for September shipments, lower compared with last week’s level at $900-910/tonne CFR NE Asia.

The Asian benzene market remained quiet in the afternoon trade after bids were heard some $30/tonne lower in the morning session than closing bids the previous day. 

The market reversed the downtrend in the early afternoon with an offer booked at $530/tonne FOB (free on board) Korea for December shipment.

Further downstream, the Asia styrene monomer (SM) market was quiet in the first half of the day, following sharp losses in yesterday’s session. Bids for September parcels were heard at $840-850/tonne CFR China while offers were limited.

In the toluene market, prices widened by around $10/tonne in late afternoon trade on Tuesday after tumbling by $45-47/tonne to $503-515/tonne FOB Korea at the end of business on 25 August.

This was attributed to the price increases in the domestic Chinese market, which had rebounded by around CNY150/tonne ex-tank day on day.

Some Chinese traders were finding opportunities to cover their short positions previously and this led to a rebound in FOB Korea prices, with discussion levels heard to be at $515-525/tonne FOB Korea.

The butadiene (BD) market was increasingly bearish as buyers retreated to the sidelines amid concerns over declining crude and naphtha prices, market sources said.

“The sentiment is bearish, and with crude and naphtha lower, there may still be room for BD to drop,” a downstream synthetic rubber producer said.

BD sellers have held back their offers this week amid the uncertain market outlook following the rout on the global equities markets and falling crude and naphtha prices.

“BD spot prices have bottomed out and we expect prices to remain flat until we have a clearer picture,” a major BD producer said.

Meanwhile regional bourses in Asia outside of the tumbling stock exchanges in Japan and China made gains on Tuesday.

This boosted sentiment in the crude oil market, with prices recovering on Tuesday. However, crude oil prices were still trading close to levels last seen in first quarter of 2009.

At 07:57 GMT, October Brent crude on London’s ICE futures exchange was trading at $43.07/bbl, up by $0.38/bbl from the previous close.

October NYMEX light sweet crude futures (WTI) were trading at $38.70/bbl, down by $0.46/bbl from the previous close.

China continued to headline the volatility in global markets on Tuesday, with the Shanghai Composite closing down 7.63% to an eight-month low of 2,964.97.

The mainland benchmark plunged by 8.5% on Monday, marking the index’s largest percentage decline since February 2007.

“At the heart of the sell-off is the concern that the Chinese economy may be slowing down dramatically, which has triggered steep losses in global stock markets, commodities and emerging markets,” said Morgan Stanley Wealth Management Research.

“China’s surprise move to devalue its yuan two weeks ago – which could make its exports more competitive – and the release of weak data signal the economy may be feebler than expected,” it added.

In Shanghai, oil and gas giant PetroChina was 9.99% lower while Sinopec Shanghai Petrochemical fell by 7.63%.

Japan’s benchmark Nikkei 225 index posted its biggest fall in more than two years on Monday.

Mitsui Chemicals closed 3.89% lower on Tuesday while Mitsubishi Chemical and Asahi Kasei eased by 4.74% and 4.33%, respectively.

In South Korea, major producers LG Chem and SK Innovation were up by 1.15% and 1.54%, respectively.

In Taiwan Formosa Petrochemical Corp (FPCC) was up by 1.54% and Nan Ya Plastics rose by 2.07%.

Malaysian producer PETRONAS Chemicals Group (PCG) was 4.65% higher while Thailand-based PTT Global Chemical was 0.01% lower.

With additional reporting by Trixie Yap, Daphne Ho, Clive Ong and James Dennis, Helen Yan, Felicia Loo, Yeow Pei Lin and Tahir Ikram

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

By Nurluqman Suratman