Asia key petrochemical markets slump on prolonged US-China trade war

Source: ICIS News

2019/07/05

SINGAPORE (ICIS)--Key petrochemical markets in Asia have suffered double-digit price declines compared with the same period in 2018, amid shrinking global trade and weakened regional economies as the US-China trade war marks its first year.

Based on ICIS daily prices of five major products on 4 July, ethylene had the steepest year-on-year price plunge at 42%, with aromatics benzene and styrene registering declines of more than 20%.

ICIS Daily Prices

Product 4-Jul-19 4-Jul-18 % change
Benzene 658.5 830.0 -20.7
Toluene 638.5 742.0 -13.9
Ethylene 790 1360.0 -41.9
Propylene 925 1050.0 -11.9
Styrene 1082.5 1360.0 -20.4

Ethylene prices fell to their lowest in a decade in early July due to a supply glut, which is expected to persist into the second half of the year.

“As the ethylene prices reached … 10-year low[s] in early July, some buying interests are expected to boost the market,” senior ICIS analyst Amy Yu said.

Maintenance schedule at Asian crackers and recovery in downstream polyethylene (PE) and monoethylene glycol (MEG) production should help prop the market up, she said.

MEG was the worst performing ethylene derivative sector in China in the first half of the year, with import prices plunging to levels last seen in 2009 and were below naphtha costs in the second half of May.

Spot MEG prices on 4 July at $903.5/tonne CFR (cost & freight) China were down 40% compared with the same period in 2018, according to ICIS data.

New capacities expected to come on stream in the second half could continue to exert downward pressure on the market, while weak margins could stall some start-ups.

“The balance of supply and demand [for ethylene] might be improved in the future,” Yu said, adding that a rebound in ethylene prices is possible in August to October.

In the fourth quarter, possible gains in the ethylene market will likely be limited by start-ups of new capacities, she said.

In the propylene market, losses were much smaller than those of ethylene's from year-ago levels at about 12% as supply availability was tightened by turnarounds.

Market uncertainties are expected to persist amid a challenging macroeconomic environment because of the unresolved trade dispute between the world’s two-biggest economies.

In the aromatics market, benzene prices in Asia have been rising recently on the back of an open arbitrage window to the US, offsetting concerns about new supply coming on stream.

On a year-on-year basis, however, current prices on a free-on-board (FOB) Korea basis are down by a fifth, in line with movement in downstream styrene monomer (SM) market over the same period.

Daily toluene prices on an FOB Korea basis on 4 July declined 14% year on year, with thin spot liquidity persisting since the first half of 2019.

For the SM market, supply losses from a combination of heavier turnaround season since March 2019 and production snags have been supporting the market.

Manufacturing activity across Asia has been slowing down, with contractions noted in the export-oriented economies of China, Japan, South Korea and Taiwan in June.

While the US and China have agreed to resume talks to end their year-long trade war, high tariffs slapped on $360bn worth of goods will continue to dampen global economic prospects into next year and translate to continued weakness in demand for petrochemicals.

(Image source: Shutterstock)

Additional reporting by Yeow Pei Lin, Joson Ng, Clive Ong, Eric Su and Trixie Yap

Focus article by Pearl Bantillo

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