Asia petrochemical markets tumble on oil price war fears, poor demand

Pearl Bantillo

09-Mar-2020

SINGAPORE (ICIS)–Asia’s petrochemical markets tumbled on Monday, greeted by a 30% plunge in crude values as Saudi Arabia’s surprise hefty price cuts could trigger an all-out oil price war against the backdrop of severely weakened global demand amid the coronavirus outbreak.

An oil price war would compound downside risks to the global economy, which is already facing a prolonged slowdown, or even a recession.

Spot prices of petrochemical feedstock naphtha slumped 25%, while aromatics benzene shed 15%, paraxylene (PX) declined by more than 10% and isomer-grade xylene was down by about 15%, tracking the steep losses in the upstream crude market.

In China’s futures markets, monoethylene glycol (MEG), methanol, polypropylene (PP) and polyethylene (PE) plunged. All of which hit their respective maximum daily movements, prompting temporary halts in trades.

Petrochemical prices in China futures markets (9 March)

Product CNY/tonne % decline
Styrene        6,434 -4.00%
MEG        4,069 -5.00%
PE        6,615 -4.00%
PP        6,841 -4.00%
PVC        6,045 -3.00%
Methanol        1,918 -5.00%
PTA        4,078 -5.00%

At midday, Brent crude was down a hefty $12.03 at $33.24/bbl, off the intra-day low of $31.02/bbl; while US crude slumped $11.42 to $29.86/bbl.

Plunging more than 31.5% at the intra-day low, Brent crude marked its steepest percentage drop since 17 January 1991 to a price last seen in February 2016.

Panic-selling on recession concerns drove down crude prices, according to She Jianyue, chief crude analyst at Chinese brokerage First Futures.

She estimated that the current crude oversupply is 4m bbl/day.

For China, which is among the world’s biggest consumer of crude, she said the situation provides a “perfect opportunity” to renegotiate a rolling back of tariffs with the US – the world’s biggest crude producer.

Until their phase-one trade deal was reached early this year, the two giant economies had been locked in a trade war since July 2018.

The oil price rout ensued after Saudi Aramco – the world’s biggest crude exporter – announced on 7 March a steep price cut of $6-8/bbl cut across regions and a plan to boost production by 2m bbl/day following a breakdown in OPEC talks for a deeper output cut amid a global oversupply.

It was largely seen as a move to grab market share, after Russia, which is the world’s third-largest crude producer, rejected the proposed 1.5m bbl/day output cut by Saudi-led oil cartel OPEC in a meeting on 6 March.

Concerns about a prolonged global slowdown continue to mount amid efforts to contain the rapid spread of the novel coronavirus, which emerged late last year in China’s central city of Wuhan.

To date, the global death toll from the flu-like epidemic stood at above 3,800 with confirmed cases at above 110,000 across more than 100 countries.

Italy, Iran and South Korea have the highest death toll and largest number of infections outside China.

Focus article by Pearl Bantillo

Additional reporting by Melanie Wee, Clive Ong, Fanny Zhang, Keven Zhang, Samuel Wong

(Picture source: Amer Ghazzal/REX/Shutterstock)

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