Plunge in oil prices may lead to deferred chem purchases

Author: Al Greenwood


HOUSTON (ICIS)--The sharp drop in oil prices could lead to deferred chemical purchase, as buyers may wait for the decline to trickle downstream, US market participants said on Wednesday.

Oil prices gave up most of their gains from Tuesday. Brent closed at $35.79 and WTI closed at $32.98.

The Energy Information Administration (EIA) expects second-quarter prices for Brent will be $37/bbl before rising to $42/bbl in the second half of the year.

A phenol source said some customers could wait for lower prices to emerge, because the large drop in crude prices would put pressure on benzene. Benzene is used to make phenol.

A polycarbonate (PC) market participant said it is seeing a lack of activity following the crash in crude oil prices.

“Everybody wants to wait. They think the prices will keep falling,” the participant said.

Crude’s plummet has some base-oils buyers on the sidelines, waiting for lower prices if the decline is sustained. Because demand has been weak, many buyers are not in a rush to secure material.

Other market participants noted a generally pessimistic mood.

An acrylates buyer said, “I’ve been talking to [intermediates] producers, and there is not much optimism. Most see the markets down in the months ahead, except for the paint guys, who are doing OK – maybe flat to a little better.”

For oleochemicals, market players are eyeing southeast Asia to see if the low crude oil price environment will disrupt Indonesia and Malaysia’s plans to implement 30% (B30) and 20% (B20) biodiesel blending mandates.

As biodiesel competes with diesel and gasoline in fuels markets, persistent low crude oil prices may increase the financial pressure on these governments to subsidise the mandates.

Producers are also increasingly challenged to offset the subsidies with revenue from feedstock palm oil exports amid muted demand for edible oils in China and elsewhere as a result of the coronavirus.

If the biodiesel mandates are not fulfilled, it could have an effect on glycerine markets. Glycerine is a byproduct of biodiesel production. Lower biodiesel production would also result in lower output of crude glycerine, pressuring global markets.

One market that is perking up is isopropanol (IPA), since it is used to make sanitiser.

In Europe, IPA prices have skyrocketed. Spot prices for technical IPA doubled in the past week, and pharmaceutical IPA prices increased almost as much. By comparison, prices in the US are up by about 10% to 13.5% over a longer time period.

One reason for the relatively muted reaction in US markets is due to the lack of ethanol in European markets, relative to the US. In the US, ethanol can be generally be substituted for IPA in hand sanitisers.  However, since ethanol is not as prevalent in Europe, it cannot be as easily substituted there.

Demand for hand sanitisers is booming worldwide right now due to fears about coronavirus (Covid-19).

Additional reporting by Larry Terry, Deniz Koray, Lucas Hall, Amanda Hay, Adam Yanelli and Tarun Raizada

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