Asia petrochemical trades slacken ahead of Lunar New Year holiday

Author: Pearl Bantillo


SINGAPORE (ICIS)--Petrochemical trades in Asia have slackened in the weeks leading to the Lunar New Year holiday as manufacturing in the key China market slows down, with a number of downstream facilities coming off stream.

Dragon dance for the Lunar New Year celebration (Source: Xinhua News Agency/REX/Shutterstock)

Amid a general demand weakness in China, some domestic factories could take time to resume production post-holiday, market sources said.

The Lunar New Year, which falls on 5 February 2019, is celebrated in most parts of southeast and northeast Asia with the holiday period ranging from two days to a full week.

China, which is the world’s second biggest economy and a major importer of petrochemicals in Asia, will be on holiday on 4-10 February for the Lunar New Year and Spring Festival.

In some markets, pre-holiday re-stocking has nudged up prices, including those of ethylene, polypropylene (PP), and styrene-acrylonitrile (SAN); while in others, sellers were keen to offload cargoes before the holidays, exerting downward pressure on markets like methyl ethyl ketone (MEK).

Ethylene prices have been strengthening in northeast Asia on the back of pre-Lunar New Year re-stocking in China and amid production issues in Europe.

Chinese buyers are worried that prices could strengthen further on signs of lower supply.

For PP, China’s import prices have risen by 2% since early December 2018 on strong buying interest as domestic cargoes are more expensive, and following the recent appreciation of the Chinese yuan.

In the southeast Asian PE market, buyers and sellers are locked in a tug-of-war given limited uptick in demand for end-products.

For MEK, market players are cautiously optimistic of a pick-up in downstream demand after the holiday amid tightened supply due to a combination of plant turnarounds, as well as production cuts due to poor margins.

In the ethylene vinyl acetate (EVA) market, prices have been falling on concerns that supply will build up in China as production will continue as per normal, while shutdowns at downstream plants will likely shave output by 30-50% leading to and during the week-long holiday in early February.

In the monoethylene glycol market, activity has started to slow down, as sales-to-output ratio at downstream polyester sector in China dropped to around 10-20%.

Polyester yarn and fibre production has declined, but is expected to pick up swiftly after the holiday amid healthy margins.

Production of bottle grade polyethylene terephthalate (PET), another downstream of MEG, will continue to be strong during the week-long holiday in preparation for the expected pick-up of demand in March.

In the polycarbonate (PC) market, spot business for most grades in China and Taiwan had been finalized, with February cargoes scarcely traded in recent weeks.

But the PC market is supported by a positive undertone in upstream bisphenol A (BPA), whose spot availability will be curbed in March because of plant turnarounds.

Demand for PC is generally expected to improve post-holiday.

For high density polyethylene pipe grade (HDPE pipe grade black 100), domestic discussions in China were stable, while some import deals were concluded for Middle East cargoes in the interest of keeping good relations with regular suppliers.

Downstream converters in the country have sufficient inventories since pipe production had dropped ahead of the holiday, as some began shutting down during the weekend of 26-27 January, with no definite restart dates.

For toluene di-isocyanate (TDI), China’s imports have come to a standstill and are likely to remain largely subdued in the near term amid soft domestic prices.

A supply glut in Asia continues to weigh on buyers’ confidence amid concerns of further declines in spot TDI prices going forward.

Activity across Asia’s petrochemical markets will continue to hinge on China’s economic well-being, which is currently clouded by a bitter trade war with the US.

The Chinese economy is showing signs of a slowdown, with exports and its manufacturing sector in contraction in December. Its 2018 GDP growth was at a 28-year low of 6.6%.

Focus article by Pearl Bantillo

Additional reporting by Eric Su, Melanie Wee, Hazel Goh, Jasmine Khoo, Felita Widjaja, Leanne Tan, Yeow Pei Lin, Clive Ong, Helen Lee and Yuanlin Koh

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