INSIGHT: ICIS daily price index collapse shows another torrid week for chemicals

LONDON (ICIS)–The collapse in crude oil prices alongside unprecedented nervousness in the major petrochemical markets worldwide helped drive the ICIS index of daily petrochemicals and polymers prices down 15% this week.

The week-on-week fall to Thursday 19 March was significant.

Over the past two weeks, and since the collapse in oil prices really took hold, this newly created index is down 23%.

EXTRAORDINARY WEEK
It has been a week like no other for most market participants. Trader have been desperate for product. Suppliers have been doing their utmost to keep going as national clampdowns on the spread of the coronavirus have proliferated and tightened significantly.

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Where the markets go from here is really anyone’s guess.

Most of Europe and the US are in the early days of the virus outbreak, and so much depends on what government measures are enacted to control the disease, how long they persist, and the reaction to them.

It has become more difficult to move product around Europe, and market players are wondering about the continued ability of producers to keep producing, given social distancing measures and health impacts on their staff, as well as customers to keep buying.

Of deep concern is the fact that, in Europe at least, automobile plants have shut and there is some evidence that demand for some plastics in construction is falling.

These are the two most important end use markets for the major petrochemicals and plastics.

PACKAGING GAINS
The picture in packaging is proving to be different. Demand for single use plastic packaging – to preserve and protect food, and for packaging disinfecting and cleaning – could well rise, not fall.

There are outlining chemicals, anything used in biocides and disinfectants, for instance, that are becoming strategically important chemicals.

The Eu is moving to ensure the production and effective distribution of products like isopropanol (IPA), propanol and ethanol.

France’s Arkema said on Friday that it was turning a pilot plant at its Rhône Alpes Research Center (CRRA), near Lyon, over to the production of an alcohol-based solution to be distributed, free of charge and as a matter of urgency to hospitals in France.

CHINA’s LEAD
Perhaps it is best to look to China for what comes next.

As published by ICIS in an Insight article on 19 March, China’s data for January-February showed a 13.5% year on year drop in industrial production due to the outbreak that started in Wuhan in December.

Production of rubber and plastic products was down 25% in the two-month period, year on year, while automobile production fell 46%, and mobile phone output was down 34%.

Foodstuff sales were up 10%, and beverages up 3%.

A great deal of the packaging for those products would have been plastic.

Polyolefins plants in China are running quite hard now, according to sources, but it remains to be seen if this is plant owners trying to make money while feedstock costs are low and the market is not grossly oversupplied, or whether it is due to stronger end use demand. More product seems to be going into inventory.

On a somewhat different note, a British Plastics Federation (BPF) survey this week showed that 80% of respondents (most would be in the plastics distribution, converting, and related industries) expect to see turnover decline in the next six months.

As many as 88% of respondents expect supply chain disruption over the next three months.

There have not been steep polyolefins price falls in Latin America, but borders are closing and lockdowns spreading. Automakers are closing plants.

The big petrochemicals and plastics this week were reacting to the collapsing price of oil as well as the spreading demand uncertainty.

Asia naphtha prices sank to 17-year lows on Friday. NE Asia ethylene import prices were at their lowest level since January 2009.

Through the week, Europe benzene bids saw the sharpest ever daily fall (18 March), falling 33%.

US ethylene spot prices also fell on 18 March to their lowest since ICIS began tracking them in 1986.

The energy and petrochemical industries are reeling from significant hits to demand due to both coronavirus and collapsing crude oil prices.

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The impact on petrochemicals and polymers prices in the US has been severe, with the US ICIS daily price index down 18% on 19 March, week on week.

Since 5 March, the US ICIS daily price index has fallen 28%.

*The following petrochemicals are included in the ICIS daily indexes:
Northeast Asia: Benzene, Toluene, Ethylene, Propylene, Styrene
Northwest Europe: Benzene, Styrene
US: Benzene, Toluene, Mixed Xylenes, Ethylene, Propylene

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

Insight by Nigel Davis