Asia petrochemical trades slow down ahead of China holidays; headwinds persist

SINGAPORE (ICIS)–Asia’s petrochemical markets have slowed down ahead of the long holiday in the Chinese markets, with concerns over long-term demand continuing to weigh on sentiment despite recent gains.

• NE Asia ICIS Petrochemical Index falls for the first time in 12 weeks
• Strong oil prices push up production cost
• Strong pick-up in China post-holiday demand unlikely

Pre-holiday restocking waned from mid-September, stepping on the brakes of strong crude-led gains in petrochemical prices in recent months.

China will be on holiday from 29 September to 6 October for the Mid-Autumn Festival and the week-long National Day celebration.

Upbeat August data out of China, along with stimulus measures for the property sector, provided a recent lift to sentiment, but global macroeconomic uncertainties abound.

“The recent improvement in several of China’s economic activity indices has convinced many market participants that China’s economy has already bottomed out, thanks to the raft of policy measures that have been rolled out. However, we remain cautious,” Japan’s Nomura Global Markets Research said in note.

In the fourth quarter, rising prices of energy and the general commodity markets, slowing momentum from the services sector and fading summer travel demand in China could weigh on the Asian chemical markets.

The ongoing property crisis in the world’s second-biggest economy and the Russia-Ukraine war remain as major headwinds on petrochemical trades.

NE ASIA PETCHEM INDEX SNAPS 12-WEEK GAINS
In the week ending 22 September, the weekly ICIS Petrochemical Index (IPEX) for northeast Asia slipped by 1.0% year on year, the first contraction in 12 weeks as China export discussions slowed down. The index tracks price movements of 12 major petrochemicals and polymers.

In the aromatics market, benzene prices in Asia trended lower in the week as boost to trade and consumption from China’s latest stimulus measures in early September tapered off and as oil prices cooled off from recent highs of around $95/bbl.

A series of stimulus measures were announced in early September for China’s ailing property sector, including reducing down payment requirements for first- and second-time home buyers and lowering interest rates for existing mortgages.

Oil prices were trading higher on Thursday, with US crude breaching $95/bbl and Brent trading at above $97/bbl, as the sharp decline in US crude stocks heightened concerns about tightening global supply in the last quarter of 2023 amid prolonged output cuts by Saudi Arabia and Russia.

In the previous week, Brent crude had crossed $95/bbl on 19 September, pulling up spot prices of selected petrochemicals, including propylene and acrylonitrile (ACN).

Concerns that central banks at major economies will keep interest rates higher for longer, meanwhile, continue to temper gains across commodities markets.

In the regional paraxylene (PX) market, prices were being weighed down by weak fundamentals in the downstream purified terephthalic acid (PTA) and polyester markets, with players doubting a strong demand recovery is possible up to year-end.

The fourth quarter is typically a lull period for downstream polyester and polyethylene terephthalate (PET) markets, which, along with a weak global macroeconomic environment and poor consumer spending, will likely keep demand for PX soft.

Asia’s polyester export discussions weakened in the week ending 26 September, weighed down by falling feedstock prices and cautious buying sentiment. Trades are expected to be subdued during the China holidays.

For olefins, ethylene prices have been stable so far in the week as weak downstream markets offset cost concerns and fewer deep-sea supply.

Northeast Asia’s spot ethylene demand for November-delivery regional supply is expected to increase, as exports from the US are expected to dwindle next month due to a tightly shut arbitrage window.

In the downstream PE market, demand in southeast Asia was deemed persistently weak amid slowing economic growth, sluggish consumer spending and rising inflation.

Many downstream PE converters across the region remained cautious, deeming recent price hikes for October could not be sustained without demand support and a corresponding increase in prices of finished plastic goods.

For fatty alcohols, a widening buy-sell price gap is hampering spot deals as demand for home personal care products shrink amid the global economic downturn, but suppliers are upbeat about China’s post-holiday demand.

In the ethyl acetate (etac) market, spot discussions in Asia have tapered off in pre-holiday trade amid faltering upstream acetic acid sectors, with a bearish fourth-quarter outlook. In the related butyl acetate (butac) market, constrained spot supply amid plant turnarounds were supporting prices.

CHINA MARKET PLAYERS CAUTIOUS
Local industry players in China are turning cautious as more than 3m tonnes/year of new capacities are expected to come on stream in the fourth quarter.

Polypropylene (PP) prices have been on an uptrend since late January, supported by higher costs and improved demand from China’s re-opening after the pandemic.

More than 3m tonnes/year of new PP capacities are expected to come onstream in Q4 in China following the end of the traditional peak demand season earlier in the third quarter.

For methanol, prices in the futures market shed 7.9% in the past week, weighing down on the import market, as players turned more cautious, after the market had a bullish run in the previous week.

Expectations of tight supply in the fourth quarter and steady end-user consumption, however, could provide some support to the market.

In the general purpose (GP) moulding grade polycarbonate (PC) market, the gains in import prices were largely driven by feedstock cost and not by demand.

For fatty alcohols, China’s import demand is expected to pick up after the holidays. Currently, a widening buy-sell price gap in Asia is hampering spot deals as demand for home personal care products has shrunk due to the global economic downturn.

For ethylene vinyl acetate (EVA), slumping domestic prices have weakened import demand ahead of the holidays.

China’s overall exports of goods are likely to remain depressed amid the global economic slowdown, while the country’s property sector is still in shambles.

MIDEAST, S ASIA ALSO GRAPPLE WITH WEAK DEMAND
Polystyrene (PS) markets in the Middle East and south Asia saw limited activity in the week ending 22 September, while uptake of October polyvinyl chloride (PVC) was dismal.

PS offers from northeast Asia spiked following a surge in cost of feedstock styrene monomer (SM), which soared to a one-year high in the first half of September.

With most regions in Asia seeing fundamentally weak macroeconomic conditions, PS demand from buyers was unable to keep pace with these increases, causing a wide buy-sell gap.

In the Gulf Cooperation Council (GCC) region, sporadic deals were recorded in the week to 22 September, but most buyers were waiting for offers from a major regional supplier next week.

For PVC, rising feedstock costs were deterring uptake of October cargoes, with initial higher offers from several Asian producers being met with lukewarm response from buyers.

Focus article by Nurluqman Suratman

Thumbnail image: Yangzhou Port in Jiangsu, China – 15 September 2023 (Source: Shutterstock)

Additional reporting by Keven Zhang, Damini Dabholkar, Samuel Wong, Judith Wang, Seng Li Peng, Yeow Pei Lin, Izham Ahmad, Helen Yan, Helen Lee, Lucy Shuai and Melanie Wee