INSIGHT INTERACTIVE: Global IPEX falls further in January but Asia creeps higher

Source: ICIS News

2019/02/06

LONDON (ICIS)--Petrochemical and polymer prices began to fall in September last year and generally continued the downward march in January.

The ICIS Petrochemical Index (IPEX) has charted the fall, the global index dropping by 19% over the period.

The index reflects the price movement of a basket of 12 petrochemical and polymer prices in the three big producing regions of the US Gulf, northwest Europe and northeast Asia. It includes the major olefins and aromatics, the big polymers and methanol.

There is always a lag in the data – the numbers reflecting the world as it was and market conditions when contract prices were settled – usually at the end of the prior month or early in the month in question.

But the data from Asia are average spot prices taken over the course of the current month.

The striking fall in the global and regional indexes in the fourth quarter helps explain why petrochemical and plastics producers are reporting sharp falls in profitability.

The sector is coming off an extended period of high returns, indeed higher than expected returns.

The fall in the oil price from October last year pushed petrochemical and plastics prices down – there is a close relationship between crude costs and petrochemical prices.

Windfall price gains are probably a thing of the past – for the time being at least. The big question now is how long, and how deep, this depressed part of the cycle might be.

In some markets, (global ethylene and polyethylene, for example) in supply and demand terms, a cycle depression has been widely expected.

Exacerbated by the trade dispute between the US and China, the down part of the cycle for ethylene and PE might be deeper and longer than producers have projected.

Financial analysts are picking up on the headwinds facing the sector generally. The trade war risks can be connected to weaker supply/demand balances, lower oil prices and slowing China and global economic growth.

The IPEX for January highlights the unpredictable nature of European methanol market and the sharp, 18% fall in methanol contract prices for the first quarter of 2019.

Producers are caught in the middle of the trade war, a changing supply landscape as mega plants come on-stream and increased economic uncertainty.

Also a feature of the data for January is the plunge in the benzene contract prices in Europe and the US. The Europe benzene contract price for January was at a nine-and-a-half year low.

US January benzene contracts fell to a 33-month low.

Benzene supply was long globally for much of 2018 as Asian producers added more capacity ahead of downstream derivatives builds. The falling oil price fed through into benzene.

Another feature of the January IPEX data are the slight price increases seen in Asia over the course of the month. Does this reflect simply the desire for stock building ahead of the Lunar New Year holiday, which began this week, or better supply/demand balances in the all-important China markets.

China’s economic expansion may be under pressure. It is certainly the subject of much debate. Unfortunately, the price data for February will continue to reflect the impact of the holiday period rather than sentiment in industry and commerce as the country gets back to work.

IPEX IPEX Value December 2018 to January 2019 change
Global 230.79 -1.26
US 228.88 -2.77
Northwest Europe  267.52 -2.88
Northeast Asia 217.08 0.40
 Major price rises in January 2019  
Commodity Region Month on month rise
Propylene NE Asia 2.35%
Polyethylene NE Asia 2.26%
Toluene NE Asia 1.29%
 Major price falls in October  
Commodity Region Month on month fall
Methanol NW Europe -17.95%
Benzene US Gulf -13.2%
Benzene  NW Europe -10.2%

By Nigel Davis

Global and regional IPEX data are available here
The ICIS Petrochemical Index methodology is available here

The ICIS petrochemical index tracks the movement of 12 major petrochemicals and polymers: ethylene, propylene, butadiene, benzene, toluene, paraxylene (PX), polyethylene (PE), polypropylene (PP), styrene, polystyrene (PS), methanol and polyvinyl chloride (PVC) with the regional indexes weighted by capacity.