SINGAPORE (ICIS)--Petrochemical prices in China slumped in March, hit by heavy losses in upstream crude market just as the country was emerging from severe pandemic-related restrictions that nearly ground its production and trades to a halt in February.
Crude shed more than half its value in March due to the price war between oil giants Saudi Arabia and Russia in an oversupplied market, while demand is sure to contract amid the rapid global spread of the coronavirus outbreak.
The crude price crash dashed initial hopes among industry players that March will see a recovery in local demand and some stability in local prices after February’s downtrend.
The ICIS China Petrochemical Index tracks movement of domestic prices of a wide array of organic and plastics products. These are methanol, purified terephthalic acid (PTA), polypropylene (PP), polyethylene (PE), monoethylene glycol (MEG), mixed xylene, benzene, toluene, acetic acid, styrene, phenol, acrylonitrile, acetone, n-butanol, 2-ethylhexanol (2-EH), acrylic esters and propylene oxide (PO).
EXPORTS FALL, IMPORTS
Any recovery in China’s domestic demand due to the lifting of coronavirus-related restrictions will be upended by severe weakness in the global export market due to the pandemic.
A number of countries and major cities in the world have resorted to lockdowns to contain the spread of the deadly coronavirus, which is believed to have emerged late last year in China’s central city of Wuhan.
As of 31 March, the flu-like virus has infected more than 750,000 and killed about 36,500 across over 200 countries/territories/areas, data from the World Health Organisation (WHO) showed.
As global consumption slumps, export orders for Chinese products will shrink and hit petrochemical production in the country.
A leading home appliance producer in China has started limiting production because of fewer export opportunities.
With China currently in recovery mode while the rest of the world is reeling from the coronavirus pandemic, the country is attracting more imports. The consequent increase in supply amid poor demand will continue to depress prices.
For PE and PP, state-owned petrochemical giants are facing strong selling pressure due to high inventory.
Inventories at port are also at elevated levels for MEG, styrene, benzene, xylene, among others.
The crash in crude prices in March has translated to better margins among China’s naphtha-based polyolefin and ethylene glycol producers encouraging increased production.
Spot domestic prices for methanol, PTA have largely tracked losses in the futures markets amid continued weakness in the upstream crude markets.
For benzene, more import deals for March and April-delivery cargoes were done as they are currently cheaper compared with domestically available material.
Analysis by Yvonne Shi
Photo: A worker at the Dongfeng Passenger Vehicle Company, which has resumed production following epidemic prevention and control rules. (By CHINE NOUVELLE/SIPA/Shutterstock)
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