Asia petrochemical markets plumb 11-year lows; demand recovery far off

Author: Pearl Bantillo

2020/03/18

SINGAPORE (ICIS)--Prices of key petrochemical markets in Asia fell to their lowest since the 2008 global financial crisis, faced with reality of shrinking demand that may worsen as the year progresses as a growing number of countries impose strict measures to contain a deadly coronavirus pandemic.

Weak crude prices will also continue to weigh on petrochemical markets as oil giants Saudi Arabia and Russia battle head to head for market share amid a global oversupply.

Asia key petrochemical markets based on 13 March ICIS weekly assessments

Product Inco terms $/tonne Lowest in number of years
Benzene FOB S Korea 513-515 11.1
Butadiene CFR NEA 700-750 4.3
Ethylene CFR NEA 625-655 11.2
Methanol CFR China 180-217 11.2
Paraxylene CFR China 614-616 11.5
Polyethylene (PE) CFR SE Asia 810-865 1.9 month
Polypropylene (PP) CFR SE Asia 880-910 4.1
Polystyrene (PS) CFR SE Asia 1000-1050 10.9
Polyvinyl chloride (PVC) CFR SE Asia 810-875 2 months
Propylene CFR NEA 710-790 3.7
Styrene CFR SE Asia 735-750 11.2
Toluene FOB S Korea 475-485 11.3

Source: ICIS

Lockdown of cities - and whole countries in the case of Italy and Malaysia - in various part of the world translates to much reduced global consumer demand, with restrictions on people movement causing major disruptions to logistics and manufacturing.

That the world may just end the decade with a global recession is not a remote possibility.

Looking at China, where the coronavirus outbreak first emerged in late 2019, epidemic-containment measures took a heavy economic toll as both manufacturing and services sectors registered record contractions in February.

“It was clear from early February that because of the extent of the downturn in China, a V-shaped recovery was never on the cards even assuming that the problems were confined to China,” ICIS senior Asia analyst John Richardson said.

In less than three months, the coronavirus outbreak that started in the Chinese central city of Wuhan has spread to more than 150 countries/areas/territories.

The virus has spread at an alarming rate with Italy emerging as the epicenter in Europe, and Iran in the Middle East.

In Asia, South Korea has the second highest number of cases next to China, but with a low mortality rate compared with those in other regions.

To date, the number of confirmed coronavirus cases globally stood at nearly 195,000, with the death toll at above 7,500.

China’s share of the total cases has shrunk to 44%, underscoring the highly contagious nature of the deadly virus.

The pandemic has continued to roil equities and financial markets, prompting a coordinated monetary policy response from major economies which did little to calm panicking investors.

Amid serious threats posed to global economic well-being, governments have launched massive stimulus packages, the latest of which is the US’ proposed $1.2tr package.

“Now that the virus has spread overseas this will make the extent of the slowdown in China even worse. The problem had been China’s inability to supply the world; now it is lack of demand from the rest of the world for Chinese manufacturing,” Richardson said.

Much weakened global demand will hit exports, which is a major growth engine for China.

Operations at petrochemical downstream plants in China are gradually improving as restrictions on people movement have eased in March, but poor demand will prevent these facilities from running at full capacity.

“The resumption of plastic finished products factories has … recovered since early March,” ICIS analyst Amy Yu said, adding that the expected average operating rate in the current month will be 70%.

“As the epidemic [is] spreading wider in the world, we expect the PE [polyethylene] demand of plastic finished exports will be impacted this year, in particular in Q2,” she said.

China’s overall PE demand should still grow in 2020 but “driven by the deepening urbanization, lots of infrastructure investments, the fast growth on FMCG [fast-moving consumer goods] industry and e-commerce development”, Yu said.

“In my preliminary idea … the growth rate of China PE seems to be below 7% in 2020, along with the risk of global crisis and the slowdown of China economy,” she said, adding that the forecast is not final and may be revised.

In the equities markets, shares of petrochemical firms in Asia were being battered as poor demand outlook is also being accompanied by slumping oil prices.

Naphtha - the main feedstock for petrochemical production in Asia - and aromatics such as benzene, paraxylene and styrene monomer (SM) closely track crude's movement.

“There will be several waves of disappointing financial results if this crisis isn’t over until the end of the year, whereas in the case of SARS [severe acute respiratory syndrome] it was only one wave of bad results,” ICIS’ Richardson said.

Focus article by Pearl Bantillo and Fanny Zhang

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.

(Image: A man walks past a shop which is going to close down in Tsim Sha Tsui in Hong Kong amid the coronavirus outbreak. (Photo by Kevin On Man Lee/Penta Press/Shutterstock))