Petrochemical trade flows to shift as India shuts doors amid pandemic

Author: Pearl Bantillo

2020/03/26

SINGAPORE (ICIS)--Major suppliers of petrochemicals to India will have to scramble to find other markets for their cargoes as the south Asian country temporarily closes its doors to trade amid the coronavirus pandemic.

India's lockdown is another major blow to an already-weakened state of petrochemical consumption in Asia and will aggravate oversupply conditions in some markets.

By volume, methanol, polyvinyl chloride (PVC), styrene and acetic acid are India’s top petrochemical imports; while benzene and polyethylene (PE) are among the country’s major exports.

India's major petrochemical imports (in thousand tonnes)

Product 2019 2018 % change
Methanol 2,323 1,903 22.1
PVC 2,188 2,001 9.3
Styrene 852 833 2.3
Acetic acid 885 958 -7.6

Source: ICIS Supply and Demand Database

Some petrochemical and downstream plants in the country have either shut or scaled back operations, with more shutdowns possible if they run out of feedstock and as the lockdown will cause a shortage of manpower.

The world’s second most populous country with 1.3bn people is on a 21-day quarantine in an attempt to contain the spread of the deadly novel coronavirus.

As of 25 March, India has 606 confirmed cases of coronavirus infection, with a death toll of 10, according to data from the World Health Organisation (WHO).

The outbreak has emerged late last year in China's central city of Wuhan and has since spread to more than 190 countries/areas/territories.

The pandemic has killed more than 18,000 globally, with confirmed cases now at more than 400,000.

Petrochemical buyers in India have started cancelling orders this week, as domestic ports declared force majeure along with the implementation of a 14-day quarantine on vessels arriving from specified countries and regions.

But much uncertainties surround the effective implementation of the countrywide lockdown.

For methanol, Middle East cargoes originally bound for India may have to be diverted to Europe or China or even southeast Asia, but the cargoes may not find takers amid a general supply glut.

India imports around 160,000 tonnes of methanol on a monthly basis, according to ICIS data.

For PVC, a complete lockdown in India would spell “bad news for the Asia market”, ICIS analyst Lina Xu said, as this would worsen the supply glut in the region.

India is highly dependent on imports for PVC, particularly from northeast Asia, Xu said, adding that China has about a 4% share of India’s total PVC imports in 2019.

The south Asian country’s average monthly intake stood at more than 180,000 tonnes, according to ICIS Supply and Demand Database.

As India retreats from the market, PVC cargoes from northeast Asia could flow to southeast Asia, Africa and central Asia, she said.

For styrene, the temporary loss of India as market would mean more cargoes would be available within Asia.

Cargoes that are not loaded are being redirected elsewhere, but those already waiting to berth at Indian ports are likely to be discharged in the next few days.

For acetic acid, India’s lockdown will hit Chinese exports. Around 10,000 tonnes of acetic acid shipments for loading in the coming weeks were cancelled.

On a monthly basis, India imports around 80,000 tonnes of acetic acid, with China accounting for about a third of the total. Other sources include Malaysia, Singapore, the Middle East, Taiwan and the US.

On the regional supply front, a halt to India’s exports may not make much of a dent in some markets as Asia is in oversupply of most petrochemicals because demand is slumping due to the pandemic.

This is true for benzene, which India typically ships out to Asia, with some volumes heading to the Middle East and Europe.

For PE, uncertainties linger on whether downstream plants in India will continue to operate or shut during the 21-day lockdown and this could affect China, ICIS analyst Amy Yu said.

“I think it will be a big uncertainty on PE supply and demand,” she said.

India’s PE capacity in 2019 stood at 5.78m tonnes, which accounts for about 37% of the total for Asia and the Pacific region.

Exports to China for the period stood at around 800,000 tonnes, or 4.7% of China’s total 2019 PE imports, she said.

“But if the PE plants in India won’t shutdown, the major impact will be in the local [market] … if downstream plastic processors stop to produce finished products while PE exports will increase in short term,” Yu said.

ICIS senior Asia analyst John Richardson had said that supply chains are a major risk for India. With the force majeure at ports and shutdown of petrochemical plants, the country may run short of resins for food packaging and other daily necessities.

While the country has had huge capacity expansions, it remained a net PE importer, he said.

“If the closures are only temporary, and if there is sufficient inventory in storage in India, this will not be a problem. But as the ports and local plants stay shut for a long period then supplies could start running out, unless the Indian government steps in to re-open the ports,” Richardson said.

Focus article by Pearl Bantillo

Additional reporting by Malini Hariharan, Helen Lee, Clive Ong, Trixie Yap, Jonathan Chou

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