INSIGHT: ICIS index charts 17% fall in global petchem prices in 2019

LONDON (ICIS)–Petrochemical prices fell sharply on average in 2019 as demand growth weakened and supply length increased.

The ICIS Petrochemical Index (IPEX), which is based on contract and monthly average spot prices in a basket of 12 commodities, including the major olefins, aromatics and polymers across the three major producing and consuming regions, fell by 17% year on year. In northeast Asia, where prices tend to react more swiftly to market influences, the annual average fall in the IPEX was 19%.

Chemical producers reached the 2019 year end with product markets under pressure from slower manufacturing industry demand and with a subdued outlook for the new calendar year.

Slowing global economic growth began to hit in 2019, exacerbated particularly by the US-China trade dispute which saw some important petrochemical commodity exports from the US re-routed in order to most cost effectively reach the China market.

Prices were lower on average in 2019 for each of the 12 commodities in the ICIS index basket. And some of the average annual price falls were significant.

Propylene prices on the US Gulf Coast were 31% lower year on year, for example.

Ethylene prices were down 28% year on year in northeast Asia. Northwest European markets appeared to be less volatile although no region escaped the steep 20% plus fall in methanol contract prices over the course of the year.

Prices in the US may have bucked a more general downward price trend earlier in the year but by mid year, the regional ICIS indexes (IPEXs) were heading south. The most recent monthly global IPEX value (for December 2019) reflects a 2.7% fall in the US Gulf Coast index component.

All the regional indexes were down month to month in December with prices globally tracking lower apart from those for the major aromatic – benzene – and for toluene. And two of the key influences on the market at the start of the new decade are clearly defined.

US olefin prices tracked lower in December. Ethylene contract prices were agreed at the start of January 2020 for November and December 2019 and both were down. The US ethylene contract price for December was down 8.5%.

Crackers have come back on stream following some outages that ran into September and October. Increased length in the ethylene market was reflected in lower polyethylene prices.

The wave of new ethylene and polyethylene capacity in the US is likely to be strongly felt this year. There will be more natural gas liquids (NGLs) available from the US shale boom to process. Abundant NGLs are likely to sustain the US ethylene cost advantage.

Converted into polyethylene, the data suggest that US polyethylene (PE) capacity could increase by 94% through 2024 from a 2017 base. The additional product is hitting export markets particularly as global GDP growth hits a 10-year low.

Significantly increased tension between the US and Iran has the Middle east and the rest of the world on tenterhooks at the start of 2020. The killing on Friday 2 January in Baghdad of General Qasem Soleimani, a senior officer in the Iran’s Islamic Revolutionary Guard, and the head of its Quds Force, drove the price of crude up by more than 4% and financial markets down.

The rising price of crude over the past two months has underpinned price increases for the major aromatics, particularly for benzene. Around mid to end November benzene values in Europe, for instance, moved up on firmer prices in Asia and the US, buoyed by bullish crude prices. The market was in contango until March.

After the US attack, however, there appeared to be little impact on the benzene market in relatively thin trading. Thus far, the increase for benzene in northwest Europe is only about $20/tonne. On Friday last week, first-half January 2019 northwest Europe bids for benzene were $760/tonne without any offers. These prices are on a cost, insurance, freight (CIF), Amsterdam-Rotterdam-Antwerp (ARA) basis.

Petrochemical prices generally move with the price of oil given a time gap of about six weeks, although spot prices can, and sometimes do, react much more swiftly.

Should crude move substantially higher because of rising geopolitical tension and possibly some supply constraints, then petrochemicals should follow.

In a subdued demand growth – and for some products a significantly expanded supply – environment, the interplay will have to be closely watched.

By Nigel Davis

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