Coronavirus and oil price war: some markets boom, others bearish
Will Beacham
13-Mar-2020
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
Global News + ICIS Chemical Business (ICB)
See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.
Contact us
Partnering with ICIS unlocks a vision of a future you can trust and achieve. We leverage our unrivalled network of industry experts to deliver a comprehensive market view based on independent and reliable data, insight and analytics.
Contact us to learn how we can support you as you transact today and plan for tomorrow.