Asia petrochemical markets track recent crude gains as demand picks up

Author: Pearl Bantillo


SINGAPORE (ICIS)--Asia’s petrochemical markets are tracking recent gains in crude oil as demand has picked up as more economies are gradually re-opening from pandemic-induced lockdowns, but the overall outlook is still riddled with uncertainties.

Naphtha, which is the main feedstock for petrochemical production in Asia, was flat at around $289.25/tonne CFR (cost & freight) Japan, in line with range-bound crude markets on Wednesday noon, amid ample supply.

Brent crude was trading at above $34/bbl, while US crude was at around $32/bbl.

In the benzene market, recent crude-driven gains were being constrained to some degree by tight storage conditions in China, which caused storage fees to spike. Spot prices were unchanged at $389/tonne FOB (free on board) Korea at midday.

In the monoethylene glycol (MEG) market, spot prices are being driven up by firm crude, naphtha and ethylene prices, while demand is also improving from downstream polyester sector in China.

Spot MEG prices have risen by 21% from end-March, according to ICIS data.

Upstream ethylene prices in northeast Asia have surged in the week ended 15 May on the back of China’s restocking activity in a tightly supplied crude market.

MEG downstream polyester plants in China have ramped up production, with their average operating rate rising to 84% from 75% in early April, according to ICIS data.

For polyvinyl chloride (PVC),  market activity improved on steady spot demand from China, easing lockdown measures in India, and with sentiment supported by recent uptrend in feedstock ethylene prices.

In the ethylene propylene diene monomer (EPDM) market, demand is expected to pick up slowly when countries re-open their economies and global automotive makers restart their factories in Asia, Europe, Latin America and the US.

For ethanolamines, demand is picking up, especially in southeast Asia, where countries such as the Philippines, Thailand and Vietnam have started to ease restrictions/lift lockdowns.

Spot monoethanolamines (MEA) and diethanolamines (DEA) in the week ended 13 May, rebounded around $20-40/tonne, at $905/tonne and $860/tonne CFR SE Asia respectively.

In the titanium dioxide (TiO2) market, demand recovery may take time as downstream manufacturers - including those in the paints and coatings sector - continue to run at reduced rates or were previously shut.

The duration of official lockdowns in most Asian countries has been mostly extended until the end of May, but restrictions on businesses and people movement are gradually being eased, in line with those adopted in economies in the west.

Fears of a second wave of coronavirus infections keep any market optimism in check.

China, which was the first to emerge in March from an economically painful lockdown, is facing a strong build-up in inventory of various chemicals as it has been drawing strong spot import volumes.

The coronavirus outbreak emerged late last year in the Chinese central city of Wuhan and has since spread globally, infecting more than 4.7m people to date.

Wuhan, which has an 11m population, was placed under lockdown on 23 January until 8 April.

April data on China’s industrial production was encouraging, with a 3.9% year-on-year increase, snapping three consecutive months of decline.

“Whether the Chinese recovery can be sustained depends on no major secondary outbreak of the virus. The signs so far look good,” ICIS senior Asia analyst John Richardson said.

“But, even assuming no secondary outbreak, some of the official economic data coming out of China has to be taken with a large pinch of salt, as the numbers appear to exaggerate the speed and strength of the rebound,” he said.

China, the world’s second-biggest economy, is projected to post a sharp slowdown in growth but may just avoid a full-year contraction, based on the International Monetary Fund (IMF) World Economic Outlook (WEO) report in April.

The economy is projected to pull a 1.2% growth this year, down from the 6.1% pace recorded in 2019.

“The problem for China remains weak consumer sentiment and the almost complete loss of export orders. Can China achieve positive GDP growth this year? Quite possibly not. Growth could even be negative,” ICIS’ Richardson said.

“But watch out for a big new government stimulus programme. This might be announced during this year’s delayed National People’s Congress, which starts on 22 May. China may go for another huge round of infrastructure spending and further boost credit availability, which saw big increases during Q1,” he added.

The coronavirus pandemic has plunged the global economy into a recession, with the total cost estimated to be as high as $8.8tr or about 10% of GDP, according to the Asian Development Bank (ADB).

The adverse impact of the pandemic on economies was partially reflected in first-quarter GDP data, and this is widely expected to worsen in April-June 2020.

Recent gains in crude prices as economies re-open may not be sustained for long as global demand is projected to plunge much more than the planned output cuts by oil majors.

“As for the global picture, oil prices have gone up with equity markets, ahead of any clarity on whether the emergence from lockdowns will go smoothly,” Richardson said.

“There’s a big risk that the emergence from lockdowns won’t go smoothly because of secondary outbreaks and the need to re-impose social-distancing measures,” he said.

The IMF may revise down its projection of a 3% contraction in world GDP for 2020.

Focus article by Pearl Bantillo

Additional reporting by Yuanlin Koh, Melanie Wee, Judith Wang, Clive Ong, Jonathan Chou, Helen Yan, Leanne Tan and Yeow Pei Lin

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