Ethylene glycol

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Discover the factors influencing ethylene glycol markets

The various chemical by-products manufactured from ethylene glycol – monoethylene glycol (MEG), triethylene glycol (TEG) and diethylene glycol (DEG) – create interdependent markets, which can be complex to navigate and trade successfully. Market participants must be able to evaluate ethylene glycol markets from every angle in order to decide the best time and price at which to secure a deal. Access to comprehensive, up-to-date and easy to digest market intelligence is crucial to support decisions.

Our experienced team of chemicals market specialists stay close to the action at each of the various quality layers of the ethylene glycol market. As well as watching ethylene glycol activity, we also take account of seasonal demand factors. These include trends in key downstream sectors such as construction, automotive, packaging and textiles, plus the upstream movements in crude oil, ethylene and naphtha. Together, this creates a complete picture and builds confidence in the way forward.

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India’s GAIL to build $7.2bn Madhya Pradesh petrochemical complex

MUMBAI (ICIS)–State-owned GAIL (India) Ltd plans to invest Indian rupee (Rs) 600 billion ($7.2 billion) to build an ethane cracker and its derivative plants in Madhya Pradesh. The cracker will have a 1.5 million tonne/year capacity and will be set up at Ashta in the Sehore district of the state in central India, GAIL said in a regulatory disclosure to the Bombay Stock Exchange (BSE) on 10 June. GAIL did not provide product or capacity details of the ethylene derivatives it plans to produce at the complex. “Around 800 hectares of land shall be provided by the MP [Madhya Pradesh] Industrial Development Corporation, for which the state government has already initiated the process,” GAIL said. Project construction is expected to begin by February 2025, with commercial production likely in the financial year ending March 2031, it added. Investment on the project is still pending approval from GAIL management board, and the mode of financing yet to be decided. The Madhya Pradesh state government has approved the project and land will be allotted soon, state chief minister Mohan Yadav had said in a statement on 7 June. He said that “petrochemicals like linear low density polyethylene (LLDPE), high density polyethylene (HDPE), mono ethylene glycol (MEG) and propylene will be produced” at the site. The new project is part of GAIL’s initiative to enhance its petrochemical portfolio, a company source said. “The demand for petrochemicals is increasing in the country, led by expanding industrial, construction and manufacturing,” he said, citing an 8-9% annual growth rate in India’s polymer demand. In March 2024, GAIL had signed a tripartite agreement with Oil and Natural Gas Corp (ONGC) and Shell Energy India to explore opportunities for the import of ethane and other hydrocarbons at Shell Energy Terminal in Hazira in the western Gujarat state. Separately, the company recently announced plans to set up liquid pipeline for ethylene (C2), propylene (C3) from Vijaipur to Aurai in the northern Uttar Pradesh state. At Pata in the same state, GAIL will begin operations at the 60,000 tonne/year PP plant by December 2024. At Usar in the western Maharashtra state, GAIL expects to begin operations at its 500,000 tonne/year propane dehydrogenation unit (PDH) and 500,000 tonnes/year polypropylene (PP) line by April 2025; and its 50,000 tonne/year isopropylene project by December 2025. In the southern Karnataka state, the company expects to bring on line its 1.25m tonne/year purified terephthalic acid (PTA) plant in Mangalore by March 2025. GAIL had acquired JBF Petrochemicals in June 2023 which allowed it to add PTA to its existing petrochemical portfolio. ($1 = Rs83.49) Focus article by Priya Jestin

11-Jun-2024

Asia top stories – weekly summary

SINGAPORE (ICIS)–Here are the top stories from ICIS News Asia and the Middle East for the week ended 7 June 2024. Vietnam’s increase in recycled PE imports boost market mood By Arianne Perez 07-Jun-24 14:37 Producers of recycled polyethylene (rPE) in northeast and southeast Asia have seen a recent uptrend in spot orders from Vietnam amid new requirements from brand owners. Asia MEG demand slows amid limited Mideast cargoes; China supply to grow By Judith Wang 06-Jun-24 13:57 SINGAPORE (ICIS)–A tug of war between snug import availability and slowing demand is likely to continue in Asia’s monoethylene glycol (MEG) market, while an expected increase in China’s domestic supply could shake things up in the near term. INSIGHT: New measures for China property market boon for chemicals By Lina Xu 05-Jun-24 10:00 SINGAPORE (ICIS)–The People's Bank of China (PBoC) released a series of new real estate-related policies on 17 May, including a nationwide removal of minimum interest rate on commercial personal housing loans; reduction in minimum down payment ratio for both first-time and second-time home buyers; and lower interest rate on housing provident fund. NE Asia C2 market sees pressure from long supply, downstream shutdowns By Josh Quah 03-Jun-24 10:49 SINGAPORE (ICIS)–Asia ethylene markets are likely to still face pressure from an overhang of regional supply from May despite some production corrections in June. Asia DEG shrugs off China’s suspended tariff concessions on Taiwan material By Judith Wang 03-Jun-24 15:20 SINGAPORE (ICIS)–Asia’s diethylene glycol (DEG) market is shrugging off China’s decision to suspend tariff concession on its imports of Taiwanese material. China PX buyers prefer domestic over imports on differing yuan exchange rates By Samuel Wong 06-Jun-24 12:36 SINGAPORE (ICIS)–The difference in exchange rates for the Chinese yuan (CNY) set by the People’s Bank of China (PBOC) and the prevailing spot market rate saw downstream purified terephthalic acid (PTA) users in China preferring domestic paraxylene (PX) cargoes over imported cargoes.

10-Jun-2024

LOGISTICS: Container rates surge, tanker rates flat to lower, Panama Canal raises maximum draft

HOUSTON (ICIS)–Global rates for shipping containers continue to surge, liquid chemical tanker rates were flat to lower, and the Panama Canal Authority (PCA) is increasing the maximum allowable draft to transit the Neopanamax locks, all highlighting this week’s logistics roundup. CONTAINER RATES Global rates for shipping containers continue to surge, although the rate may be slowing. Global average rates from supply chain advisors Drewry rose by 4% this week, a slower pace from the double-digit increases over the previous two weeks. The following chart shows that average rates are approaching $4,250/FEU (40-foot equivalent unit). Rates from Asia to the US are also at new highs for the year, as shown in the following chart. Rates continue to be pressured higher because of unrest in the Middle East, specifically attacks on commercial vessels by Yemen-backed Houthi rebels. Houthis even claimed responsibility for an attack on the USS Dwight D Eisenhower, an aircraft carrier stationed in the Red Sea. US and UK responded by sending fighter jets to strike Houthi targets in Yemen. Rates are likely to continue rising, according to ocean and freight rate analytics firm Xeneta. “The ocean freight container shipping market has seen rapid and dramatic increases during May and that is set to continue with further growth in spot rates,” Peter Sand, Xeneta chief analyst, said. “On 1 June, spot rates will reach a level we have not seen since 2022 when the COVID-19 pandemic was still wreaking chaos across ocean freight supply chains.” From the Asia-Pacific to US West Coast, market average spot rates are expected to reach $5,170/FEU on 1 June, which would surpass the Red Sea crisis peak of $4,820/FEU seen on 1 February, Xeneta said. This is an increase of 57% during May and the highest spot rates have been on this trade for 640 days. From the Asia-Pacific to US East Coast, spot rates are expected to reach $6,250/FEU on 1 June, only slightly shy of the Red Sea crisis peak of $6,260/FEU and an increase of 50% since 29 April. Container ships and costs for shipping containers are relevant to the chemical industry because while most chemicals are liquids and are shipped in tankers, container ships transport polymers, such as polyethylene (PE) and polypropylene (PP), are shipped in pellets. They also transport liquid chemicals in isotanks. LIQUID TANKER RATES US chemical tanker freight rates assessed by ICIS were mostly unchanged. However, rates increased from Brazil to the US Gulf (USG) and fell slightly from the USG to Asia and from the USG to Brazil. From the USG to Brazil, there continues to be plenty of contractual volumes for both caustic soda and monoethylene glycol (MEG). All the regulars are open and have a lot of tanks to fill. This route has experienced significant downward pressure due to market dynamics and because activity here has been limited. The USG to Brazil trade lane is expected to remain at a standstill which could add further pressure. From the USG to Asia, freight rates declined due to lack of interest. PORT OF BALTIMORE The Unified Command (UC) continues to clear wreckage from the bottom of the Patapsco river, projecting to fully restore the Fort McHenry Federal Channel to its original 700-foot width and 50-foot depth by 8-10 June. The UC cleared a 400-foot-wide swath of the federal channel on 20 May, permitting all pre-collapse, deep-draft commercial vessels to transit the port. Source: Maryland State Police Aviation Command PANAMA CANAL The Panama Canal Authority (PCA) is increasing the maximum allowable draft to transit the Neopanamax locks, effective immediately. The PCA said the arrival of the rainy season in the Canal watershed prompted the action. Wait times for non-booked southbound vessels ready for transit held steady this week for northbound traffic and fell for southbound vessels, according to the PCA vessel tracker and as shown in the following image. Wait times a week ago were 1.5 days for northbound vessels and 3.6 days for southbound vessels. Additional reporting by Kevin Callahan

31-May-2024

APIC '24: China oversupply presents challenges and opportunities for Taiwan – PIAT chair

SEOUL (ICIS)–Oversupply of petrochemicals in China has not dampened the country’s role as a key demand driver, presenting Taiwan with both challenges and opportunities, the chairman of the Petrochemical Industry of Taiwan (PIAT) said on Friday. “As we all know, many large-scale integrated projects are carried out in various parts of China by these years leading to an oversupply of petrochemicals … [but] China remains the primary driver of demand growth,” Mihn Tsao told delegates at the Asia Petrochemical Industry Conference (APIC) in Seoul, South Korea. “Taiwan, being an export-oriented economy, cannot ignore China's vast market,” he added. Last year proved exceptionally challenging for Taiwan's petrochemical sector, Tsao said, as global economic growth slowed due to inflation, geopolitical tensions, trade disputes, and climate change concerns, Tsao said. The termination of tariff preferences for 12 petrochemical products under the Economic Cooperation Framework Agreement (ECFA) with China added further strain, he said. Weak global demand and inventory pressures resulted in a significant 12.5% year-on-year decline in Taiwan's overall industrial production index last year, the largest in history, Tsao noted. Taiwan’s petrochemical firms thus experienced reduced operation rates and lower-than-expected profits last year, he said. Going forward, Taiwan's petrochemical industry is actively pursuing sustainable solutions, leveraging artificial intelligence (AI) to enhance production processes and efficiency, while transitioning towards green energy-related products such as ethylene-vinyl acetate copolymer (EVA), epichlorohydrin (ECH), and carbon fiber, Tsao said. Investments in low-carbon energy transformation, circular economy initiatives, and increased renewable energy adoption are also underway to bolster climate change resilience, Tsao added. The two-day APIC event ends Friday.

31-May-2024

APIC ’24: Overcapacity weighs on Japan petrochemical production – JPCA

SINGAPORE/SEOUL (ICIS)–Cracker operations in Japan will remain “challenging” this year amid soft demand while capacity expansion in China continues, according to the Japan Petrochemical Industry Association (JPCA). C2 output falls to record low in 2023 Production of five major plastics shrink by around 5% Capacity optimization among industry main tasks “With new cracker capacities being planned in China almost every year at a pace far exceeding demand, the operation rates of domestic crackers are expected to remain challenging,” said a JPCA report prepared for the Asia Petrochemical Industry Conference (APIC) being held in Seoul. The two-day conference ends on 31 May. In 2023, Japan’s ethylene (C2) production shrank 2.3% to a record low of 5.32 million tonnes, as domestic crackers ran below full capacity, JPCA data showed. “The operation rates of domestic crackers have remained below 90% (this rate is said to be the criterion for judging the economic situation) since August 2022 and the monthly operation rate dropped below 80% four times in 2023,” JPCA said. Japan, which was dislodged by Germany as the world’s third-biggest economy in 2023, is projected to post a 2024 GDP growth of around 1.3%, down from last year’s 1.9% pace. In Q1 2024, the economy shrank at an annualised rate of 2.0% as both consumption and capital spending weakened. For the whole of 2023, the country’s total production of five major plastics – namely, linear density polyethylene (PE), high density PE (HDPE), polypropylene (PP), polystyrene (PS) and polyvinyl chloride (PVC) – declined by an average of 4.7% to 6.02 million tonnes. Japan production of major petrochemicals (in thousand tonnes) Product 2023 2022 % change Ethylene 5,324 5,449 -2.3 LDPE 1,223 1,347 -9.2 HDPE 661 714 -7.4 PP 2,075 2,120 -2.1 PS 564 654 -13.8 PVC 1,496 1,483 0.9 Styrene monomer (SM) 1,428 1,542 -7.4 Ethylene glycol (EG) 264 351 -24.8 Acrylonitrile (ACN) 341 422 -19.2 Sources: JPCA, Japan's Ministry of Economy, Trade and Industry (METI), Japan Styrene Industry Association (PS, SM) and Vinyl Environmental Council (PVC) Domestic demand as ethylene equivalent for the year declined by 11.9% to 3.87 million tonnes, according to JPCA data. “In 2024, there is a risk of a decline in demand due to the deterioration of the global economy, such as price hikes of raw commodities due to supply disruptions caused by several problems,” JPCA said, citing Russia’s prolonged invasion of Ukraine, the Israel-Hamas war, and attacks on commercial ships in the Red Sea. “But a certain amount of demand growth is expected due to the resilience of the US and some developing countries’ economy, and the global economy would have a possibility to make a ‘soft landing’,” JPCA stated. Economists are growing more confident that the US – the world’s biggest economy – will be able to post a 2024 growth rate of 2.4%, easing from the actual GDP growth of 2.5% in 2023. China, although beset by a slumping property sector, should be able to post a 5.0% GDP growth, according to the revised forecast by the International Monetary Fund (IMF). In the report, JPCA also emphasized the petrochemical industry’s tasks to engage in “green” or environmental-friendly transformation toward carbon neutrality by 2050; to enhance and optimize excess production capacity amid a declining population; to push for digital transformation; and contribute to a recycling-oriented society. “In Japan, demonstration experiments using new process technologies and raw materials that contribute to green activities have begun, such as biomass-based fuel, bio-material-based olefins, ammonia synthesis, and hydrocarbon synthesis,” it said. Focus article by Pearl Bantillo

30-May-2024

APIC '24: Chemical plant closures to accelerate amid unprecedented oversupply

SEOUL (ICIS)–Announcements of chemical plant closures are expected to gain momentum throughout 2024 as the industry now realizes that demand will not improve measurably anytime soon to offset languishing margins, a senior industry analyst said on Thursday. Speaking at the Asia Petrochemical Industry Conference (APIC) in Seoul, South Korea, ICIS vice president of chemical analytics Alex Lidback said that "margins for most products are suffering”. Lidback that demand is still growing for base chemicals overall but noted that the growth is slowing. "It’s very difficult to grow your way out of this [excess capacity]," he said. Global base chemical demand growth Lidback attributed the current market woes to excess capacity additions in recent years, particularly in China, resulting in persistent excess capacity in base chemicals such as ethylene, propylene, ethylene glycol, paraxylene (PX), and styrene. "The over-capacity is unprecedented – unless there are extensive shutdowns, the market will not rebalance most products anytime soon," Lidback said. "Major capacity shutdowns will take place when companies decide not to maintain existing assets and delay FIDs [final investment decisions]." This glut of supply has severely eroded profit margins, pushing many producers into the red. “If you go back to previous down cycles, China helped grow out of this excess capacity,” Lidback noted. The situation is different this time around, as China is no longer able to absorb the excess capacity, adding that the imports of base chemicals have declined by 12 million tonnes from 2020 to 2023, he said. China's imports "Growing out of this excess capacity state will take too long, China will not be the savior," Lidback said. The industry will need to make some difficult decisions to rebalance the market, including permanent plant closures, project delays, and even cancellations. “So, what we think is gonna happen over the next few years is starting this year is we're gonna start to see the announcements of permanent closures." While low-cost assets in the Middle East and North America are secure, higher-cost producers in other regions are vulnerable, the ICIS analyst said. Several factors have delayed necessary decisions, including the financial stability of many companies entering the downturn, the integration of some chemical firms with refining operations that benefited from favorable crack spreads, and the lingering hope of a strong demand rebound. "A lot of companies entered this down cycle in a pretty good financial state, which allowed them to ride the wave a little bit further through these tough margins," Lidback said. However, the anticipated demand recovery has not materialized. Lidback recalled the optimism that followed a strong first half of 2022, but noted that the second half was "terrible," and that the hoped-for improvement in 2023 had not occurred. "The hope was that the first half of 2023 would be slow, but the second half of 2023 would be a very strong demand year. Obviously, that didn't just transpire, and we haven't seen really any major improvement in 2024." Lidback also pointed to the high cost of capital as a factor that is making it more difficult for companies to invest in new projects. “It’s a lot harder with these types of interest rates in reverse sitting around 7%. And I’ll tell you that for FIDs, you go to a [management] board right now and ask for a project – that’s going to be really difficult." Focus article by Nurluqman Suratman

30-May-2024

APIC ’24: PODCAST: Asia ethylene June supply, demand likely stable

SEOUL (ICIS)–In this podcast, ICIS markets editor Josh Quah shares an update on the ethylene (C2) market in Asia based on discussions during the Asia Petrochemical Industry Conference (APIC) 2024. S Korea Jun cracker run rates may see some downward adjustment, though unlikely to be significant July arrival demand uncertain amid turnarounds, some recovering margins C2 export allocations to hinge on polymer profitability Visit us at Booth 13 at the Grand Ballroom Foyer, Grand InterContinental Seoul Parnas! Book a meeting with ICIS here.

30-May-2024

APIC '24: Thailand chemicals demand to recover after challenging 2023 – FTIPC

SEOUL (ICIS)–Thailand's petrochemical industry is expected to recover in 2024 as demand improves following a challenging 2023, which was marked by a global economic slowdown, inflation, and high energy costs that dampened consumption. The Federation of Thai Industries' Petrochemical Industry Club (FTIPC), in a report prepared for the Asia Petrochemical Industry Conference (APIC), noted that uncertainties in the global economy, including the recent Israel-Hamas conflict, China's economic stagnation, and instability in US and European financial markets, have impacted the Thai economy. KEY SEGMENTS IMPACTED This challenging environment has already impacted key petrochemical segments. Ethylene consumption, for example, declined in 2023 due to weaker economic conditions and subdued demand. in '000 tonnes/year 2020 2021 2022 2023 Total Capacity 4,609 5,409 5,409 5,360 Production 4,516 5,045 4,530 4,463 Consumption by derivative products* 4,719 5,040 4,478 4,463 Exports 44 99 63 41 Import 163 43 87 95 *Consumption netbacked from polyethylene (PE), ethylene dichloride/vinyl chloride monomer (EDC/VCM), ethylene glycol (EG), and styrene monomer (SM) production Demand for ethylene is expected to remain under pressure in 2024 due to feedstock volatility, weak derivative demand, and increased competition from new capacities in China, southeast Asia, and the US. Additionally, polymer converters are grappling with major concerns such as geopolitical uncertainties, global recession fears, and high inflation rates, as consumers limit spending and further weaken demand for end-use sectors. OUTLOOK AND CHALLENGES AHEAD Looking ahead, Thailand, southeast Asia's second-largest economy, is projected to grow by 2.2%-3.2% in 2024, fueled partly by a rebound in exports and increased private and public investment. However, the recovery in global demand for petrochemicals is not expected to fully materialize until the second half of 2024, according to the FTIPC. This is due in part to a supply glut in Asian markets caused by increased production capacity in China, Vietnam, Indonesia, and Thailand itself, as well as the Middle East, which has prompted producers to reduce output or maintain inventory levels to preserve profit margins. Volatile economic conditions, geopolitical conflicts, new rules of global trade, and the trend of reducing carbon emissions and greenhouse gases present both opportunities and challenges for the petrochemical sector, the FTIPC said. “Businesses must adapt to this changing landscape by enhancing competitiveness, flexibility, and continuous adaptation amidst external uncertainties,” it said. “Integrating business operations with sustainable development is crucial, with a focus on sustainable business growth that meets the demands of consumers in a low-carbon and net-zero emission society.” Focus article by Nurluqman Suratman

30-May-2024

Global chemical industry poised for M&A boost from Japan, India in 2024 – DC Advisory

NEW YORK (ICIS)–The global chemical sector should see increasing mergers and acquisitions (M&A) activity through the rest of 2024 following a depressed 2023, driven in part by portfolio restructuring among Japanese companies as well as increasing interest by Indian buyers, according to an investment bank. “In 2024, we are seeing increased levels of M&A activity as companies reevaluate their portfolios and seek strategic opportunities to drive growth, while navigating a constantly evolving landscape that is currently marked by technological advancements, shifting geopolitical alliances and an increasing emphasis on sustainability,” said investment bank DC Advisory in a report by managing director Federico Mennella and others. It expects the portfolio re-evaluation of Japanese chemical companies to accelerate and spur future M&A activity. China’s aggressive capacity expansion in commodity chemicals has greatly pressured Japanese companies exporting petrochemicals to China. Just under a third of Japan’s petrochemical output is exported, and China accounted for around half of exports in 2022, the investment bank pointed out. “Japanese production of ethylene has dropped to its lowest in 25 years due to China’s fast-growing capacity,” said DC Advisory. “As a result, Japanese diversified chemical companies such as Mitsubishi Chemical, Mitsui Chemicals and Resonac Holdings have recently announced strategies to restructure their petrochemical businesses, such as divesting, collaborating with other companies and to consider IPOs,” it added. Japanese chemical companies have also become more active on the buy side as they transition towards specialty, low-carbon and more sustainable business models. In April 2024, Japan-based Shin-Etsu Chemical announced its planned acquisition of Japan-based semiconductor materials company Mimasu Semiconductor Industry through a tender offer for shares. Shin-Etsu already had a 43.87% stake in Mimasu. In October 2023, Sumitomo Bakelite agreed to buy Asahi Kasei’s Pax packaging and films business serving the pharmaceutical, industrial and food sectors. DC Advisory advised Shin-Etsu and Sumitomo Bakelite on their respective transactions. Other recent deals involving Japan-based buyers include Sumitomo Corp/Saconix, DIC/PCAS Canada and Fujifilm/Entegris’ electronic chemicals business. INDIA AS A BUY-SIDE FORCEMeanwhile, India’s chemical industry has grown sales by over 6%/year on average since 2012 and is now further benefiting from global supply chain diversification, the investment bank pointed out. “We… believe the China Plus One Strategy, set up to minimize supply chain dependencies on China by diversifying the countries they source from, will drive growth in the Indian chemicals industry and prompt further M&A in the sector,” said DC Advisory. “With the Indian public markets recently valuing the specialty chemicals sector at a lifetime peak, we expect Indian companies in the sector will be eager to utilize available cash and if required raise further equity to do global acquisitions,” it added. The investment bank sees Indian buyers as consolidators for global assets in agrochemicals, active pharmaceutical ingredients (APIs), and specialty chemicals CDMO (contract development and manufacturing organization) segments. In November 2023, India-based carbon black producer PCBL Ltd announced the acquisition of India-based water treatment and oil and gas chemicals company Aquapharm Chemicals for $456 million. In June 2023, Bain Capital announced the acquisition of India-based Porus Labs, a producer of ag and specialty chemicals. “Large global funds such as CVC through its investment in Sajjan (2021) and Bain with its investment in Porus Labs, both leading Indian chemicals manufacturers, have created specialty chemicals platforms with an Indian company as the anchor asset from which they can acquire global businesses,” said DC Advisory. OTHER POSITIVE DRIVERSThe overall backdrop is also becoming more positive for chemical deal-making with increased earnings visibility in the sector for 2024; streamlining of portfolios toward growth subsectors; continued consolidation in sectors such as adhesives, coatings, pigments, ag chemicals and flavors and fragrances; and continued interest by private equity buyers, particularly in the sustainability aspect of chemicals, DC Advisory pointed out. The energy transition and the circular economy are also driving chemical sector growth and M&A activity. “We believe chemicals and materials companies that do not incorporate sustainability into their business models will not find buyers and may even struggle to survive, while those driving the change to a cleaner future will be in high demand from both private equity and strategic buyers,” said DC Advisory. Focus article by Joseph Chang

29-May-2024

INSIGHT: Surging freight rates hamper Asia petrochemical trades

SINGAPORE (ICIS)–A severe shortage of containers and vessel space as commercial ships take a much longer route to avoid the Red Sea has sent freight rates skyrocketing in recent weeks, artificially propping up petrochemical prices even as demand remained generally weak. Some sellers offer on free on board (FOB) basis but no takers Freight costs for Chinese exports more than double India may suffer near-term shortage of select petrochemicals Across markets in Asia in recent weeks, industry players’ lament boils down to this exasperated hyperbole: “The freight rates are killing us!” It takes the fun out of witnessing some initial signs of recovery in external demand for global manufacturing giant China. Whatever export competitiveness Asia gained from having weaker currencies against the US dollar is being undermined by the high cost of shipping out of the region. The Chinese yuan recently fell to a six-month low, while the Japanese yen continues to trade at multi-year lows against the US dollar, which is firmly supported by higher-for-longer interest rates. Overseas demand for Chinese products, including petrochemicals, seems to be improving, but actual trades are being hampered by logistics woes stemming from the Red Sea crisis in the Middle East. Attacks on commercial ships have continued in the key shipping lane that connects Asia to Europe, the latest being on an oil tanker bound for China. Rerouting of ships to the Cape of Good Hope meant longer voyage times and much slower turnover of vessels and containers, thereby, creating a strong pressure on freight rates, which may persist for most of the year. “The race for capacity appears to have started, with shippers showing strong demand due to shippers moving significant cargo in the first four months of 2024 to avoid potential Q3 constraints​​,” Richard Fattal, chief commercial officer of London-based freight forwarder Zencargo said in a note on 20 May. “Combined with an average of 5% ongoing blanked sailings, there is a looming future of tighter capacity, higher rates and sellers’ market swings ahead,” he said. “With capacity shrinking in the face of resurgent port congestion, driven by equipment shortages in China and longer routes around the Cape of Good Hope,” Fattal said. For Q2, Zencargo is projecting more than a 13% contraction shipping capacity on the Asia-Europe routes compared with Q3 2023, “with alliances cancelling 5% of sailings between weeks 20 and 24 [H2 May to H1 June]”. “The effective capacity to Northern Europe, based on actual vessel departures from Asia, has decreased by 5.1% compared to a year ago,” it said, citing “the longer route taken by the majority of vessels via the Cape of Good Hope, despite a 17.8% increase in vessel capacity on the Asia-North Europe route”. For the Asia-Mediterranean route, however, the overall capacity has “increased by 10.5%, even with the diversions via the Cape” due to a 49.1% increase in total deployed capacity on this route compared to a year ago”, Zencargo said. WEST BUILDING WALLS AGAINST CHINA TRADES The July-September period is the peak season for Chinese shipments to the west, ahead of the Christmas season in December, according to Wang Guowen, director at Shenzen Logistics and Supply Chain Management Research. Possibly driving up US’ overall demand for Chinese goods, which exerts upward pressure on shipping costs, is the impending tariff hike on imports of selected products from China, including electric vehicles (EVs) and battery materials. For Chinese EVs, the US import tariffs would quadruple to 100% from 1 August, which is tantamount to a ban. European countries appear to be considering similar protectionist measures against China, whose overcapacity is deemed to be killing domestic industries in the west. “Western countries' implementation of tariffs and tax structures on Chinese-manufactured automotive and EV exports is anticipated to significantly impact the shipping sector by potentially reducing vessel demand,” online container and leasing platform Container xChange said in a recent note. To bypass these trade barriers, Chinese automotive and EV makers “are accelerating efforts to internationalize their manufacturing, assembly, and distribution processes”, it said, adding that “immediate effects are already evident, as manufacturers are hastening to ship EVs to avoid impending tariffs and uncertainties”. In the global petrochemical scene, manufacturing facilities in the US and Europe, as well as in parts of northeast Asia are shutting down amid China’s overcapacity. Technically, reduced production elsewhere would open up new markets for China’s excess capacity, if not for the surging freight rates, which further deter trades while demand recovery remains fragile. China’s overall exports have remained soft, posting low single-digit annualised growths in three of the first four months of 2024, with one month in contraction. HEADACHE FOR INDIA PETROCHEMICAL IMPORTERS Petrochemical end-users in India are facing long waiting time to get their hands on imports from China. “Now, no shipping lines will confirm fresh Q2 shipment booking, even after dishing out quotes that are three to four times higher than Q1,” an India-based styrene butadiene rubber (SBR) importer said. A phenol trader said: “June vessel arrangements are more troublesome this year because of the Red Sea issues and also China's exports have been weak especially in the past two months, so fewer vessels are being arranged to China.” India is possibly facing a near-term shortage of purified terephthalic acid (PTA), since northeast/southeast Asian suppliers are struggling to export to the south Asian market. Freight rates from both Taiwan and Thailand to India nearly doubled from April, with voyage time for some shipments taking as long as 90 days, up from the usual 30-40 days. For polyethylene (PE) and polypropylene (PP), cargoes from the Middle East heading to the south Asian markets of India and Pakistan are also being delayed, amid congestion at the ports of Salalah in Oman, Dammam in Saudi Arabia and Jebel Ali in the UAE. For polymeric methylene diphenyl diisocyanate (PMDI) of northeast Asian origin, offers to India have spiked amid tightened regional supply, with delays in getting cargoes from South Korea. SURGING SHIPPING COSTS KILLING SPOT TRADESSpot petrochemical trades are being stalled by constantly changing freight rates on a weekly basis. In the polypropylene (PP) market, some Chinese suppliers have stopped offering on a cost, insurance and freight (CIF) basis, and will only offer on FOB basis because of the risks. For the China-to-Vietnam and the Vietnam-to-Indonesia routes, freight rates have nearly tripled, market players said. Buyers are less willing to discuss on an FOB basis, unwilling to shoulder an expected high cost since most of them do not have their own regular shipper. For soda ash, offers of Turkey-origin dense grade cargoes for 1,000-tonne lots to southeast Asia for Q3 shipments rose to around $300/tonne CFR, up by $20-30/tonne compared with May shipments. Importers of the material across Asia were largely staying on the side lines, with some of them experiencing delays in receiving Turkish cargoes. “Discussion levels are firming up due to freight costs,” said an end-user, adding that the “Red Sea issue is getting worse and lots of shipments from Europe and USA are stuck.” The same is true for the southeast Asian PE market given delays in arrivals of Middle East-origin cargoes and amid perceptions of shorter supply. In the oxo-alcohols markets, producers in Asia are under strong pressure to offload cargoes at lower prices given difficulty in moving volumes to their usual export outlets. Freight rates on chemical tankers are also on the rise amid the Red Sea crisis, sources from Asia’s monoethylene glycol market, resulting in postponing of cargo-loading by some producers. “The freight rates are quite high now, and we have to optimize our vessel availability,” a major MEG producer said. FURTHER FREIGHT SPIKES LIKELY IN JUNE H2 is typically “a busier, more competitive, and profitable season for the shipping industry”, with many container sellers are “currently holding onto their inventory” in anticipation of better demand, said Christian Roeloffs, co-founder and CEO of Container xChange, in a note in May. "In an environment of heightened market volatility and encouraging demand recovery for global trade, container traders are gearing up for the second half of 2024, where we expect a cyclical rise in demand,” he said. “This combination of heavier-than-expected demand for freight and anticipation of further demand surges in the second half of 2024 is driving up container trading prices in China,” Roeloffs added. In a recently conducted survey of container traders and leasing companies by Container xChange, it noted that a majority of the respondents reported “extremely high prices for 40 ft high cube containers in China”. On 21 May, the average one-way leasing rates quoted in the market rose to as high as $2,480 for 40 HC in China for US-bound shipments, more than double the rate at the start of the month at around $950, it said. With ceasefire between Israel and Palestinian militant Hamas in Gaza proving elusive and the threat of a wider Middle East conflict still hanging, it looks like high freight rates are here to stay for an extended period. Insight article by Pearl Bantillo With contributions from Nurluqman Suratman, Fanny Zhang, Nadim Salamoun, Judith Wang, Helen Lee, Ai Teng Lim, Samuel Wong, Julia Tan, Izham Ahmad, Jackie Wong, Shannen Ng, Helen Yan and Clive Ong

29-May-2024

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