Asia petchem stocks to remain under pressure from US-China trade spat

Author: Nurluqman Suratman

2019/08/05

SINGAPORE (ICIS)--The downward pressure on Asian petrochemical shares is set to continue as regional equity markets extended losses on Monday following the escalation in trade tensions between the US and China late last week.

China's yuan has also fallen past 7 to  a dollar to a record low in offshore trading.

A trader on the floor of the New York Stock Exchange (Drew/AP/Shutterstock)

"Markets continue to display risk-off behaviours, following the US decision to impose further tariffs on China last Thursday (1 August)," Singapore-based OCBC Treasury Research said in a note on Monday.

For the week ending 5 August, the S&P 500 and Nasdaq in the US fell 3.1% and 3.9%, respectively, marking their biggest weekly drops for the year. The Dow had its second-worst week of the year, sliding 2.6%.

At 03:50 GMT, Japan's Mitsui Chemicals was 3.92% lower while Asahi Kasei slumped by 8.00%. Refining and chemicals producer JXTG Holdings was down by 2.49%.

The benchmark Nikkei 225 Index was down by 2.35% after earlier falling to its lowest since early June this year.

In South Korea, LG Chem was down 3.17% while Kumho Petrochemical was 6/29% lower. The Korea Stock Exchange KOSPI Index was down by 2.04%.

In Hong Kong, Sinopec Shanghai Petrochemical was 3.00% lower while PetroChina fell by 2.74%. The key Hang Seng Index was down by 2.98% as investors continued to eye pro-democracy protestors who have launched a rare city-wide strike on Monday.

Malaysian producer PETRONAS Chemicals Group was 1.75% lower while Taiwan's Formosa Petrochemical Corp down by 0.95%.

In the oil markets, Brent crude was down 77 cents at $61.12/bbl while US crude was 64 cents lower at $55.02/bbl.

"It now appears that the energy market is more influenced by demand factors than supply issues at the moment, and will likely be influenced by the bearish sentiment surrounding markets at the moment," OCBC said.

Investors have been spooked since US President Donald Trump abruptly declared he would impose 10% tariffs on $300bn in Chinese imports, with the S&P 500 index in the US now at its lowest since end-June.

The bulk of the consumer goods that are targeted are apparel, footwear, toys, cellphones and laptop computers.

"As part of a broader trend that includes increased tariffs and greater trade policy uncertainty, the move highlights a significant threat to global growth," Fitch Ratings said in a note on Monday.

"On their own, the tariffs may have a limited direct impact on near-term growth and policy responses could mitigate these effects," it said.

China's commerce ministry on 2 August said the country "will have to take necessary countermeasures" if the tariffs are imposed.

"Based on the current observations, Trump’s claim that China has paid for most of the tariffs is clearly wrong," OCBS said. "There are lots of examples of US companies paying for more than half of the tariffs, which they may  eventually pass to end consumers."

"At 10% of additional tariffs, we think both sides may be able to absorb the impact. The impact on the global economy may mainly be felt via worsening risk-off sentiment," it added.

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Focus article by Nurluqman Suratman