Oil rout deals fresh blow to virus-hit demand for Asia petrochemicals

Author: Pearl Bantillo

2020/03/09

SINGAPORE (ICIS)--Asia’s petrochemical markets took a heavy beating as Brent crude plumbed to its lowest in more than three years, raising the prospect of an oil price war, which further clouds the outlook on coronavirus-hit demand.

Sellers of key petrochemical feedstock ethylene failed to get bids for end March- and April-arrival cargoes as the slump in upstream prices have unnerved buyers.

Notional buying indications for ethylene were at $550-600/tonne CFR (cost & freight) NE (northeast) Asia, which were not workable for suppliers. Last Friday’s transacted price was at $680/tonne CFR NE Asia.

Restocking activity is expected to remain weak if the crude market stays bearish while ethylene importers are worried that the demand for their own products will slow down and this could in turn affect their output.

On Monday, spot prices of naphtha - Asia’s main feedstock for petrochemical production - slumped 25%; while those of aromatics benzene shed 15%paraxylene (PX) declined by more than 10% and isomer-grade xylene was down by about 15% as crude values nosedived by more than 30% following Saudi Arabia’s price cut.

The oil price rout, nonetheless, makes naphtha-based producers more competitive compared with coal-based producers, said ICIS analyst Rachel Qian, citing that in 2019, negative margins prompted naphtha-based producers to lower their operating rates.

Toluene prices plumbed to their lowest since early 2009, with April offers tumbling to $450/tonne FOB (free on board) Korea from $520/tonne FOB Korea in the morning, against much lower bids at $400/tonne FOB Korea.

Monoethylene glycol (MEG) prices plunged by more than 11% to $445-462/tonne CFR CMP (China main port), the steepest daily decline since mid-October 2008.

“Today is the worst day since [the 2008] global financial crisis. Most market players are watching the market, and nobody knows what will happen tomorrow,” a market participant said.

In China’s futures markets, monoethylene glycol (MEG), methanol, polypropylene (PP) and polyethylene (PE) plunged on Monday, hitting their respective maximum daily movements early in the day, prompting temporary halts in trades.

Petrochemical markets in China were weakened by prolonged inactivity due to the extended Lunar New Year holiday on measures adopted to contain the spread of the deadly coronavirus, which emerged in the central city of Wuhan late last year.

Supply has built up with no demand to soak it up.

Saudi Arabia’s hefty cuts in crude oil prices and plans to boost production were a direct response to Russia’s rejection of the proposed deeper output cuts by OPEC and its allies to support the crude market.

The move raised concerns that the world is in for a price war among the oil giants, including the US, at a time of oversupply and much weakened demand.

The global economy may be in for a prolonged slowdown or a recession as manufacturing and services sectors are being battered by containment measures adopted against the spreading coronavirus.

Focus article by Pearl Bantillo

Additional reporting by Yeow Pei Lin, Tahir Ikram, Trixie Yap and Judith Wang

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