INSIGHT: Asia faces largely disrupted plastics demand amid coronavirus pandemic

Felicia Loo


SINGAPORE (ICIS)–Lockdowns. Pandemic. Coronavirus.

These three words, commonplace as they are, often trigger anxiety in many of us as the novel coronavirus has robbed over a hundred thousand lives and confirmed cases topped 2m worldwide.

Amid such a catastrophe, it begs the question whether the world is heading towards economic destruction especially in the wake of crude oil prices that had been bludgeoned into the negative territory early this week – an act of desperation of oil traders imploring buyers to soak up their surplus bloated barrels.

“At least for the next two years, we are facing an environment of a much, much weaker global economy,” ICIS senior Asia analyst John Richardson said.

With lockdowns in place in many countries across the globe, the economy is almost at a standstill, largely non-thriving unlike the pre-coronavirus days.

It is a trying period, to say the least.

“The industry is facing a crisis coming at it from many directions, which we expect will be worse than 2008, with major bankruptcies likely,” said Paul Hodges, who is the chairman of International eChem.

He added that “the lockdowns (now impacting 3bn people) are causing actual demand in key sectors (autos etc) to crater except for essential items”.

Heavy bruising of the auto industry was evident in declining vehicle sales compared with year-ago levels.

Major markets in China and India saw the sales plummet by more than 40% year on year due to subdued consumer demand amid the coronavirus outbreak.

China’s vehicle sales plunged 43.3% on an annualized basis to 1.43m units in March and vehicle sales in India tumbled 45% year on year to 1.05m units in the same month.

The grim auto industry condition has buried the prices of the raw materials used in cars.

Butadiene (BD) spot supply has outstripped demand due to the slump in the automotive sector.

Major tyre and auto makers had suspended operations or shuttered their facilities worldwide due to the lockdowns, transport restrictions and travel bans imposed by authorities worldwide to contain the coronavirus pandemic.

Spot interest for BD had waned as the downstream synthetic rubber makers had cut their operating rates, or were mostly running at reduced rates, given the slump in the automotive sector.

Regional and deep-sea suppliers were pressured to offload their overflowing tanks while buyers were unwilling to commit to any further spot purchases in view of the uncertain market outlook and looming global recession.

The slump in the downstream synthetic rubber (SR) market had curbed demand, with major downstream SR makers having largely fulfilled their May requirements, and not in a hurry to start discussions for June and July shipments.

To boost trade, China lowered its one-year lending rate by 20 basis points (bps) to 3.85% to reduce companies’ borrowing cost to help boost growth, according to the central bank.

The five-year loan prime rate (LPR) was cut by 10 bps to 4.65% from 20 April, the People’s Bank of China (PBoC) said.

China, the world’s largest car market, had seen declining sales and production in March on year as its economy weakened and posted a negative growth of 6.8% in the first quarter, due to restrictive containment measures that virtually halted all economic activity in February.

In India, tyre and automotive makers had shuttered their plants, crippling demand, while import cargoes were stuck at the ports due to the transport restrictions.

The Asian polybutadiene rubber (PBR) market remained in the doldrums as demand slumped amid the fallout from the coronavirus pandemic, along with sharp declines in feedstock BD prices which have plummeted by about 55% since late January due to oversupply and a slump in demand.

April business in Asia has been severely hit by extended lockdowns, border closures, transport and port restrictions and travel bans in the region to contain the coronavirus pandemic.

The pandemic has battered demand and disrupted the supply chain, wreaking havoc across the globe as major tyre and auto makers suspend operations or shutter their facilities worldwide.

In other petrochemical markets, buying requirements were on a downtrend as there continued to be no end in sight to the coronavirus pandemic.

In the monoethylene glycol (MEG) market, additional cargoes from the US and India continued to flow to China due to dwindled local demand.

However, lengthened imports will be offset by the supply reduction in the local China market as several integrated MEG units in China will undergo maintenance in the second quarter. Some coal-based MEG units were shut down because of negative margins.

Polyester sales slipped as China’s exports of textile products were decreased amid the coronavirus pandemic.

For propylene, market trends are moving towards a U-shaped recovery with the global economy and chemicals demand taking longer to rebound versus the financial crisis of 2008-2009. Pre-coronavirus volumes may not return until 2022.

Strong demand for protective items such as facial masks and gears boosted consumption for polypropylene (PP) fibre grade material, and many producers have switched to producing the grade.

It is not all doom and gloom across the petrochemical segments.

Coupled with the Chinese central bank’s plans to inject yuan (CNY) 550bn of liquidity in an effort to boost the economy, the polyethylene market in the country appears to be lifted by this move.

China’s polyethylene (PE) demand growth in 2020 will largely be driven by domestic consumption, which accounts for 80% of total demand and this would have a positive impact in Asia as China is a major PE consumer.

Meanwhile, demand for paraxylene (PX) in China is healthy, amid relatively high operating rates at downstream purified terephthalic acid (PTA), and a lack of scheduled maintenance in the near term.

A healthy spread between feedstock PX and PTA in China had enticed end-users to continue operating their plants, despite a gradual build-up in PTA inventories.

Outside of China, downstream PTA facilities are gradually adjusting their run rates lower, amid weak downstream demand, especially in the textile industries.

Various lockdown measures taken by countries to contain the spread of the coronavirus had led to a slowdown in converter operations.

Operating rates of aromatics facilities were largely maintained, on the back of better performing co-product benzene, thus keeping supply of PX ample, reflected by the contango market structure.

Insight article by Felicia Loo and Helen Yan

Additional reporting by Samuel Wong, Leanne Tan, Aviva Hu, Joson Ng, Angie Li, Lucy Shuai and Judith Wang

Photo: Workers assemble cars at the Dongfeng Honda Automobile factory in Wuhan in central China’s Hubei province. (Photo by Ng Han Guan/AP/Shutterstock)

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


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