US-China trade war, economic slowdown hurt Asia chemicals prices

Author: Will Beacham

2019/05/31

BARCELONA (ICIS)--Asian chemicals prices are suffering as downstream markets' demand softens due to the ongoing US-China trade war and the general economic slowdown.

Prices are falling across multiple value chains, with some collapsing to decade-lows despite steady or firming feedstock values.

China polymers markets are in a particularly fragile state as 25% US tariffs on many finished articles containing plastics has unnerved export-oriented convertors and their customers.

The slowing Chinese economy is also hitting demand growth for plastic products domestically, as well as packaging, a major use of polyethylene (PE).

As hopes for a truce between China and the US fade, markets are now planning for these elevated tariffs to persist.

Without a resolution to the dispute, the US plans to hit a further $300bn of Chinese goods with 25% tariffs in June, meaning that almost all of the country’s exports to the US will be targeted.

ICIS reported earlier this week  that Asia's polycarbonate (PC) markets have slumped to record lows in nearly a decade, pummelled by a plentiful supply situation that could persist amid the ongoing US-China trade war.

Spot PC prices extended their downward trend due to the supply overhang, while demand was dwindling, particularly for imports in the key China market.

Warehouses in China are reportedly being full of PC inventories, with the trade war hitting customer sentiment.

The downward spiral in PC prices comes alongside weakening polymethyl methacrylate (PMMA) prices in China amid lacklustre demand.

Chinese domestic PC supply is due to increase as local projects start up this year.

Asia’s methyl methacrylate (MMA) spot prices have slumped to their lowest levels in 28 months, and the market is likely to stay stifled amid weak Chinese values and the impact of the trade war, marking the ninth straight month that prices have fallen.

Acrylonitrile-butadiene-styrene (ABS) markets in Asia have also fallen heavily this month, with this product being particularly sensitive to the trade war because key end uses include export markets such as electronics and recreational products.

Another major use is in the automotive sector, which has suffered double-digit declines in China this year.

Only elevated feedstock costs have stopped Asia ABS falling further, with acrylonitrile (ACN) rising on the back of tight global supply.

AUTO WEAKNESS TAKES TOLL
The automotive sector is weak globally, and especially in Asia with the large markets of India and China suffering double-digit declines in production in April, a trend expected to persist in May and June.

China’s tyre exports to the US have shrunk in the first four months of 2019, and may continue to fall, and this has had a direct impact on styrene butadiene rubber (SBR), the main chemical going into tyre production.

Beleaguered SBR manufacturers in Asia this week hiked their prices in the face of a 14% increase in feedstock butadiene (BD).

“But there are no enquiries and no buying interest,” a Chinese rubber distributor said.

In Asia’s ethyl acetate (etac) markets, producers are trying to hike prices in the face of weak demand, and plants in China are operating at reduced rates to stem losses amid soft market conditions.

“Prices can be supported from a cost perspective but if demand cannot support, prices may drop back,” said an large distributor in northeast Asia.

US PE PUTS PRESSURE
The start-up of new US PE capacities is also unsettling Asia’s PE sector as the new production, especially as competitively-priced linear low density polyethylene (LLDPE) seeks new markets.

China PE prices are also falling, putting downward pressure on the rest of Asia.

In China, domestic high density polyethylene (HDPE) producers with swing plants may switch to LLDPE production instead, as HDPE prices have slumped to decade-low numbers.

The titanium dioxide (Ti02) market is also suffering, with prices in Asia expected to remain weighed down by the trade war and consumer sentiment.

China’s TiO2 first-quarter imports and exports slumped year on year.

Additional reporting by Lucy Shuai, Melanie Wee, Helen Yan, Felita Widjaja, Leanne Tan, Kheng Wee Loy, and Li Li Chng

Pictured: An investor monitors stock prices at a brokerage house in Beijing
Source: Andy Wong/AP/Shutterstock

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Focus article by Will Beacham