Coronavirus and oil price war: some markets boom, others bearish

Author: Will Beacham

2020/03/13

BARCELONA (ICIS)--While many chemical markets have become bearish as a result of the coronavirus and oil price rout, some have seen a sometimes spectacular boost to demand and pricing.

Coronavirus-linked lockdowns of populations first in China, Asia and now Europe, have disrupted logistics and dampened consumer demand, putting downward pressure on prices and volumes for many products.

However a few bright spots for demand have emerged, especially for chemicals reliant on supply from China, or linked to sanitising products and food packaging.

This week’s oil price collapse has added a new element of chaos to chemical markets, with spot prices already falling for commodities closely linked to the upstream such as ethylene and naphtha.

EUROPE IPA ROCKETS
Chemicals which go into sanitising products have spiked as demand far outstrips supply. Perhaps the biggest hike (see interactive graph below) was seen by isopropanol (IPA) where prices doubled in Europe this week for technical grade material.

Ethanol - also used for sanitising products - saw a less spectacular increase.

Prices have also risen significantly for urea and diammonium phosphate (DAP) where most global production is in China. Although operating rates are now slowly returning to normal, shortages have pushed up prices.

Demand for some grades of polyethylene terephthalate (PET) has spiked in Europe with reports of panic buying for products in bulk, such as large water bottles and certain foods that keep.

Demand for caprolactam (capro) and downstream nylon has risen in Italy as downstream manufacturers stock up, fearing future disruption to supply chains.

This could, however, be temporary as end use sectors such as automotive face a downturn in production and sales if the lockdowns spread further across Europe.

EUROPE PE GAINS FROM OIL
European naphtha-based polymer producers are likely to gain from the oil price rout. Their cost disadvantage against US ethane-based competitors is now waning.

The coronavirus lockdown is boosting demand in Italy, possibly for consumer stocking of certain goods, and packaging in the food and hygiene sectors. This pattern could be repeated elsewhere if more national lockdowns lead to consumer stockpiling.

However, with the global economy heading for a potential recession, falling overall demand couple with over-supply could put both PE and ethylene producers everywhere under more pressure in 2020.

BEARISH MARKETS
For other markets, especially those connected to travel, demand has taken  a direct hit from the coronavirus pandemic. Jet fuel is an obvious example: the US ban on travel to most of Europe, and restrictions in movement in many countries, have seen prices plummet. 

Business and leisure travel has collapsed.  JetBlue CEO Robin Hayes said on CNBC Tuesday that flight demand has fallen more due to the coronavirus than it did after the 11 September attacks.  United Airlines said it has seen a 70% net drop in domestic bookings the past few days, while gross bookings are down 25%.

Spot ethylene import prices in southeast Asia fell to their lowest level  since December 2008, amid bearish sentiment following a plunge in crude futures, the rapid spread of the coronavirus across the globe and recent strong exports from Europe.

Click on the graph to make it bigger.

Asia’s diethylene glycol (DEG) prices plunged to levels last seen during the 2008 global financial crisis following the sharp drop in the monoethylene glycol (MEG) market, which led to subdued trade and sidelined most buyers.

Focus article by Will Beacham

Additional reporting by Pei Lin Yeow, Caroline Murray, Linda Naylor, Deepika Thapliyal, Alex Snodgrass, Judith Wang and Stephanie Wix.

Interactive graph by Miguel Rodriguez-Fernandez