Crude falls by $2/bbl, Asia petrochemical shares dip on China COVID-19 protests

Pearl Bantillo

28-Nov-2022

SINGAPORE (ICIS)–Crude prices slumped on Monday, tumbling by more than $2/bbl, while shares of petrochemical companies in Asia took a beating on demand concerns amid growing protests in China against strict pandemic curbs.

At midday, Brent crude was down by $2.27 at $81.36/bbl, while US crude fell by $2.11 at $74.17.

As of 04:30 GMT, Chinese bourses in Shanghai, Shenzhen and Hong Kong were down by more than 1%.

Company/Stock Exchange (At 04:30 GMT) % Change
Nikkei 225 (Japan) -0.50%
Asahi Kasei -0.63%
ENEOS Holdings -0.55%
Mitsubishi Chemical -1.27%
Mitsui Chemicals -1.75%
HANG SENG INDEX -1.98%
China Petroleum & Chemical Corp -1.97%
PetroChina -2.03%
KOSPI Composite Index -1.08%
OCI Company -2.66%
SK Innovation -0.93%
LG Chem 0.42%
Lotte Chemical -0.28%
Hanwha Solutions -0.93%
TSEC weighted index (Taiwan) -1.08%
Formosa Petrochemical Corp -3.11%
Nan Ya Plastics 0.13%
Formosa Chemicals & Fibre Corp -0.41%
STI Index (Singapore) -0.43%
Wilmar International -0.49%
SSE Composite Index (Shanghai, China) -1.03%
Wanhua Chemical -1.50%
Shenzhen Index -1.05%
Jakarta Composite Index (Indonesia) -0.23%
Chandra Asri Petrochemical -0.43%
SET Index (Thailand) -0.19%
PTT Global Chemical -0.53%
Siam Cement 0.59%
Thai Oil -0.45%

China has been recording spikes in daily COVID-19 caseloads, dashing hopes that strict lockdowns in the world’s second biggest economy will be lifted anytime soon.

The country is a major importer of petrochemicals and is an important market for most of Asia.

Protests against COVID-19 restrictions erupted over the weekend at dozens of Chinese cities – including the major industrial hubs of Guangzhou, Wuhan, Chongqing, Beijing and Shanghai – and continues to spread, after a fatal fire incident in Urumqi in northwestern China.

In response to the protests, the Chaoyang district in Beijing re-opened 75 high-risk communities, while Guangzhou province cancelled curbs on dozens of communities over the weekend.

In Urumqi, 10 people were killed while nine others were injured in the blaze that erupted at a residential building on 24 November.

Emergency exits in the building at the time were sealed off as the city capital of Xinjiang has been under strict pandemic curbs for nearly four months, according to media reports. A day after the incident, Urumqi’s city government announced a gradual lifting of the lockdown.

China’s central government had announced on 11 November measures to ease COVID-19 restrictions, such as cutting quarantine time and no lockdowns on low-risk areas.

Local governments, however, were hesitant to relax the strict pandemic curbs amid rising domestic infection rates.

As of 27 November, new infections in China stood at 40,347, with 3,822 symptomatic and 36,525 asymptomatic cases, according to the National Health Commission (NHC).

China’s economy is being weighed down by its zero-COVID policy and an ailing property sector, with its central bank cutting interest rates when most of its global counterparts are doing the opposite.

The People’s Bank of China (PBoC) has announced a 25-basis point cut in banks’ reserve requirement ratio (RRR) from 5 December, which would release some yuan (CNY) 500bn ($70bn) in liquidity into the financial system.

It last trimmed the RRR on 25 April 2022.

“Coming on the back of the 16-point rescue package for the real estate market, the RRR cut was not unexpected and could contribute to the additional credit support to the country’s developers by reducing the amount of reserves that banks need to hold,” said Ho Woei Chen, economist at Singapore-based UOB Global Economics & Markets Research, in a note on Monday.

China’s central bank could continue with monetary policy easing, with another cut in the RRR and or policy interest rates likely in the first quarter of 2023, Ho said.

UOB expects China to post a weaker annualized GDP growth of 3.9% in the fourth quarter, compared with its earlier forecast of a 4.5% increase “given increasing headwinds facing the economy”, but maintains its full-year growth forecast of 3.3%.

“The main source of uncertainty is the current surge in COVID-19 infections and spreading anti-lockdown protests that are unprecedented in China,” Ho said.

For 2023, UOB projects China’s economic growth to accelerate to 4.8% “as we anticipate further gradual easing of its COVID-19 measures next year as well as flow-through of the stimulus measures to be positive for the economy”, Ho said.

Focus article by Pearl Bantillo and Fanny Zhang

($1 = CNY7.20)

Thumbnail image: China yuan notes. (Photo by How Hwee Young/Epa/REX/Shutterstock)

Click here to read the Ukraine topic page, which examines the impact of the conflict on oil, gas, fertilizer and chemical markets.
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