Asia chemical outlook dims on weak Q3 demand, poor economy

SINGAPORE (ICIS)–Asia’s chemical market outlook is dim amid rising supply, while demand is seasonally weak in the third quarter.

Sinopec refinery and petrochemical complex in Qingdao, Shandong province in China. (Source: Sipa Asia/Shutterstock)

Sentiment is bearish, with trading dulled by poor macroeconomic data evident in weakened June manufacturing activity, as the year-long US-China trade disputes eroded market confidence.

In the vinyl acetate monomer (VAM) market, supply could remain long notwithstanding production cuts in China because of continued weakness in demand.

While Chinese VAM producers lowered run rates – as reflected in the domestic average operating rate of 68% in mid-July versus 80% in mid-June – most VAM plants outside China are running normally with the bulk of turnarounds completed.

Taiwan’s Dairen Chemical Corp will raise runs at its 350,000 tonne/year VAM plant in Singapore in August, to build up inventory ahead of a scheduled 45-day maintenance at the unit in October.

In the styrene monomer (SM) market, China is facing rising deep-sea inflows from Europe due to an open arbitrage window since May.

Compounding the situation, spot import cargoes will also increase with the restart of Hanwha Total’s two SM plants in Daesan, South Korea, in early July after prolonged shutdowns.

The SM market will see supply outstripping demand given that the third quarter is a weak demand season.

In the plasticizers market, while high propylene prices helped bolster spot 2-ethylhexanol (2-EH) prices in east Asia, actual demand for 2-EH is weak due to negative plasticizers margin. Propylene prices had spiked due to plant outages and tightened supply in China.

In the low linear low density polyethylene (LLDPE) market, growing supply has dampened prices in China.

China’s LLDPE supply – domestic output and imports – increased by 13.5% year on year to 5.3m tonnes in January-May this year, while domestic LLDPE output grew 4.7% year on year and imports jumped by 28.6%.

Chinese domestic LLDPE supply increased because of the start-up of CNOOC and Shell Petrochemical Co’s (CSPC) 300,000 tonne/year plant in April 2018 and Jiutai Energy’s new 250,000 tonne/year LLDPE/LDPE unit that focuses on LLDPE production.

Bucking the weakness in the Asian chemical markets is ethylene, which found respite from cracker outages in southeast Asia this week, with prospects of margins improving on consequent tighter supply.

In Malaysia, Kerteh-based crackers – one operated by PETRONAS Chemicals Olefins and the other, by PETRONAS Chemicals Ethylene – are running at reduced rates following an accident at a gas unit at the site.

In Singapore, a production unit at Shell’s refinery and petrochemical complex in Pulau Bukom had an operational upset on 14 July.

Focus article by Felicia Loo

Additional reporting by Lucy Shuai, Helen Lee, Joson Ng, Tina Zhang and Pei Lin Yeow.

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