Asia's petchem demand stays bleak in new norm uncertainty

Author: Felicia Loo

2020/05/22

SINGAPORE (ICIS)--Asia’s consumption for many plastics would be limited even as countries ease their lockdowns gradually, as the uncertainty surrounding the new norm in a yet-to-foreseen success against the coronavirus remains.

In the petrochemical chain, a common trend emerges, that is, supply is outstripping demand in general.

As evident this week, the casualty of the virus was reflected in Japan, the world's third-largest economy.

Japan’s exports in April posted their sharpest decline since the global financial crisis of 2009, with chemical shipments down 6.3% year on year as external demand suffered ravages from the coronavirus pandemic.

The country's total exports shrank 21.9% year on year to yen (Y) 5.20tr ($48.3bn), while imports fell by 7.2% to Y6.13tr, according to data from Japan’s Ministry of Finance.

Back to the plastics community, paraxylene's (PX) fundamentals remained weak, as supply within the region stayed ample.

Outside of China, several purified terephthalic acid (PTA) units remained either shut or continued to operate at lower rates amid weak downstream polyester demand.

Meanwhile, as the spread between feedstock PX and PTA stayed above the deemed healthy level, PTA facilities in China continue to operate at high rates despite consistent buildup in PTA inventories.

The impending startup of Hengli Petrochemical’s new 2.5m tonne/year No 5 PTA unit had also kept China’s demand for PX steady.

The contrasting downstream market between China and non-China markets had led to the recent increased flow of open-origin cargoes to China.

Most of Asian adipic acid (ADA) buyers were covered in the near-term and they were reluctant to commit to cargoes, citing weak downstream manufacturing activity.

In the Chinese domestic markets, deals done were also limited, with many buyers on wait-and-see as export volumes of finished goods remained low.

The Chinese spot methanol market came under pressure from a combination of bearish factors such as high port inventories, limited June tankage, and heavy port congestion.

There was growing interest for sellers to explore Asian markets other than China, but there was limited buying interest in the face of ample supply.

In addition, higher freight costs and limited vessel availability also made it difficult to offer competitive prices to some markets.

Asia's monoethylene glycol (MEG) buyers remained cautious in light of the rising port inventories.

Buying interest dwindled as importers were not keen to restock cargoes due to the tight availability of storage tanks, which prompted sellers to offload cargoes without storage tanks.

Concerns on the rising deep-sea MEG cargoes for May and June arrivals continued to weigh on sentiment.

Downstream demand remained soft with falling polyester sales as polyester producers were still plagued by the shrinking export orders amid the coronavirus pandemic and China’s textile exports were also hit hard by the virus.

On methyl isobutyl ketone (MIBK), supply plunged, with major plants in China shut except for LCY Zhenjiang. South Korea’s Kumho P&B was also shut this week.

Many producers explained that it was down to poor economics. They could not cope with soaring feedstock acetone costs even after adjusting their MIBK offers.

Downstream demand was lacklustre, particularly for rubber tyres. Automotive sales have been hit by the coronavirus outbreak.

Trade in India and southeast Asia came to a standstill. Many players chose to hold out for a clearer market direction before committing to procurement.

Most plasticizers sellers did not show too much urgency in the spot market as they were of the view that feedstock markets will continue to provide support for plasticizers. However, buyers had other ideas.

Even as domestic prices rose in China, buyers said the upward momentum was not strong overall. Many were conservative in their bids, leading to a wide buy-sell gap.

Asia’s soda ash market came under pressure from weak downstream demand amid extended social isolation measures and rising inventory pressure in China.

This prompted producers in China to revise down offers and offer volume discounts.

Supply remained more than sufficient despite ongoing and impending shutdowns at several soda ash plants in China.

The overall inventory levels in China rose to 1.8m tonnes, versus normal levels of around 1m tonnes, noted a key local producer.

Although some southeast Asian countries have emerged from social isolation measures, importers’ stock replenishment volumes were lower.

Market players in some southeast Asian countries anticipate downbeat second quarter economic growth data, leading to expectations that downstream consumption may remain capped even after social isolation measures are lifted.

Interactive by Miguel Rodriguez-Fernandez

Additional reporting by Pearl Bantillo, Helen Lee, Joson Ng, Samuel Wong, Ho Zhi Xuan, Judith Wang, Kite Chong and Angeline Soh

Focus article by Felicia Loo

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