ICIS WEBINAR: With few exceptions, chems see sharp price declines

HOUSTON (ICIS)–Unless they are connected to hygiene, prices for most petrochemicals are falling sharply because of weak demand caused by the coronavirus (Covid-19) and the crash in oil prices.

The front-month Brent futures contract fell from $66.25/bbl on 2 January to less than $30/bbl, dragging down prices for many petrochemicals.

Petrochemical and polymer prices tend to follow crude oil with a lag of about six weeks, according to the ICIS Petrochemical Index (IPEX). The index tracks 12 major petrochemicals and polymers.

In Europe, April contracts for ethylene, propylene and benzene are settling at steep declines, said Barbara Ortner, ICIS Head of Market Reporting. She was among the speakers in a webinar, part of a series hosted by ICIS.

The European ethylene contract reference price for April fell to €720/tonne, down by a record €200/tonne from March. The settlement was an 11-year low.

The European propylene contract reference price for April dropped to a four-year low of €650/tonne, down by €175/tonne from March.

The decline in benzene prices was more dramatic. The April contract settled at €171/tonne, a decrease of €424/tonne, or 71%, from March.

In addition to oil prices, the coronavirus has led to travel and work restrictions that are shutting down large parts of the economy, many of which are important petrochemical end markets.

Companies have shut down automobile plants and delayed construction projects.

ICIS is developing various models that look at the effects that these and other shutdowns could have on petrochemical markets, depending on how long they last, said Rhian O’Connor, ICIS market demand analyst. Some of these test lockdowns as short as two months. Others consider the disease re-emerging and causing longer disruptions.

People are losing jobs and businesses, and all of this will lower petrochemical demand, she said. Other scenarios considered by the models include civil unrest and reorganised supply chains.

All of these factors affect the depth and duration of any recession and the trajectory of any recovery.

“Our view is demand for the rest of this year and possibly even going into 2021 will not return to pre-crisis levels,” O’Connor said.

All of this plays a role in petrochemical prices. Economic downturns lower demand for petrochemicals, and this lowers sales volumes, she said. That lowers the spread between the petrochemical sales prices and the raw material costs.

Those costs go back to oil prices, and those could remain lower for longer, O’Connor said.

NOT ALL DOOM AND GLOOM
There are pockets within the chemical industry that are seeing spikes of demand caused by the coronavirus.

In Europe, prices for isopropanol (IPA) are soaring because of demand for hand sanitizers.

Glycerine prices are also being pressured by demand for hygiene products.

Demand for face shields to protect cashiers at retail stores is pressuring prices for polymethyl methacrylate (PMMA) in Europe.

Food packaging demand is also increasing, although this is having limited effects on polymers. O’Connor estimates that about 30-40% of polyethylene (PE) is used in packaging.

Other more specialised medical uses will not translate into meaningful demand for commodity plastics, she said.

Plus, declines in demand for other plastic end uses could offset any increases in demand for medical equipment and food packaging.

Caustic soda is another mixed picture. It is used to produce alumina, the raw material for aluminium. Demand for the metal will decline during the recession.

On the on the other hand, caustic soda is used to make cleaners, disinfectants and soaps, said Jim Sheehan, equity research analyst at Suntrust Robinson. It is also used in the pulp and paper industry, which has benefitted from panic buying for toilet paper and paper towels. At the same time, there were some maintenance outages, which restricted supply.

Producers have even nominated price increases, Sheehan said.

He suspects this could be a temporary boost. In time, the recession could more than offset the stimulatory effects of the coronavirus.

A similar dynamic could take place for nonwoven fabrics, he said.

These are made from fibres made of PE and polypropylene (PP). These are used to make facial masks, personal protective equipment (PPE) and medical garments.

But these uses could be offset by the larger declines in industry and automobile production, Sheehan said.

Demand for paints and coatings is also spotty. People quarantined at home are taking on do-it-yourself (DIY) projects.

Others home owners who need to repaint their houses are putting it off because they want contractors to do the work. They do not want work crews exposing them to the coronavirus.

At the same time, paint companies are exposed to the slowdown in the automobile industry, Sheehan said. Large projects at hotels and restaurants are being halted.

In Europe, construction is slowing down, O’Connor said.

Thumbnail image shows US dollars. Photo by Al Greenwood

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