LONDON (ICIS)--Supply and demand won out over fluctuating oil price sentiment to help underpin petrochemical prices in August.
The ICIS Petrochemical Index for the month was up 1.22% as price weakness in northwest Europe was trumped by strong gains in northeast Asia.
The Europe benzene contract for the month, agreed at the end of July was down $53/tonne, or €52/tonne, largely on supply length. Benzene in Europe has been falling back against feedstocks, with the crude to benzene spot price ratio declining since March and from very comfortable territory in 2016/17.
As is the case across much of the industry, spreads and margins remain healthy but are not as strong as they were in the buoyant quarters of the past couple of years.
Benzene price volatility might be expected but when it comes to paraxylene, the pull of downstream markets in Asia usually holds sway.
That was the case in August. At the end of July, spot PX prices reached highs not seen since 2015. The Asia PX supply/demand was set to tighten as plants went into maintenance in August and September.
At the same time, purified terephthalic acid (PTA) demand (for polyester) was healthy and ably supporting the PX price upstream while delivering a good spread for the PTA maker.
The global IPEX reflects the price movements of 12 petrochemicals and polymers regionally in northeast Asia, the US Gulf Coast and northwest Europe.
The price movement highlights for August, reflecting market conditions from the end of July through the height of the northern hemisphere summer, suggest that producers are coping with oil-based feedstock cost fluctuations and increasing ethane and propane feedstock costs in the US.
Most US ethylene contracts for August had settled on Wednesday at an increase of 1 cent/lb, pushed higher by increasing spot prices and higher costs.
Ethylene was long in the US in August following recent big cracker start-ups and both ethylene spot and contract prices had reached historic lows in the second quarter. The rebound has been largely due to rising ethane and propane costs.
The ethylene feedstock/demand picture is shifting significantly with the new cracker start-ups and the resumption of operations at the new US polyethylene plants.
The outlook remains clouded not just by the on-stream dates of the new facilities and their impact on cracker feedstock costs but by the regional export picture for polyethylene, itself overshadowed by the US/China trade war which we looked at in detail in Insight on Wednesday.
Polyethylene prices in the US were down 4.23% in August according to the IPEX data.
The regional IPEXs show that petrochemical and polymer prices in northwest Europe and the US were under pressure for the month of August but that market tightness in northeast Asia helped lift the regional IPEX value there by 2.90%.
The Asia IPEX value is based on average spot prices – this is a spot driven market – while the values in Europe and the US are contract-based. The relative weakness in the latter two regions may also be related to industrial slowdown during the ‘dog days’ of summer.
Having navigated through a quiet August, supply/demand balances (for products and feedstocks) hold the key to the remainder of Q3 and Q4.
By Nigel Davis