Asia petrochemical buying likely dull post-Lunar New Year

SINGAPORE (ICIS)–Renewed concerns over surging Omicron infections in Asia could lead to pedestrian buying appetite for petrochemicals post-Lunar New Year.

Currently, several regions in China are under lockdown, including the petrochemical hub of Tianjin. Market participants fear that the restrictions may become more severe and widespread if coronavirus cases continue to climb, and further dampen downstream demand.

Ongoing shipping congestion along the Yangtze River may also affect downstream demand, as Chinese producers face difficulties in exporting finished goods, leading to increased selling pressure and weaker petrochemicals demand from derivative sectors.

The current congestion levels are likely to persist until mid-February as some Chinese ports operate at slower rates amid the Lunar New Year holidays (31 January-6 February), market participants said.

“Some [petrochemical] demand will be dented. We expect the shipping delays will intensify because of the rising cases [of the Omicron variant],” ICIS senior analyst Amy Yu said.

“The logistics and transportation issues will happen in some areas where the restrictions have been re-imposed,” she said.

Meanwhile, market confidence is being undermined as China’s GDP growth in the fourth quarter stood at 4.0%, the lowest in 2021 and the third consecutive slowdown in the year.

The pandemic has strongly impacted the global economy and China also felt the squeeze as its growth slowed to a three decade-low of 2.3% in 2020.

Some propylene market players fear that the Omicron variant will significantly curtail downstream demand.

Other propylene downstream markets are also expecting lacklustre demand after the week-long Lunar New Year holiday in China.

For acrylic acid, pre-holiday restocking will likely to keep post-holiday discussions constrained, especially amid the market uncertainty surrounding the Omicron variant, participants said.

In the monoethylene glycol (MEG) market, some producers have resorted to cutting output, while others are mulling lowering run rates because stronger crude performance has driven up costs, thereby eroding margins.

The recent start-up of Sinopec Zhenhai Refining & Chemical’s 800,000 tonne/year plant in China, however, has somewhat eased reduced supply in the spot market.

Subdued spot buying from end-users has prevailed amid dwindling demand as some downstream derivatives including dyeing and weaving factories have closed their business in the week leading to the holiday.

But demand is expected to pick up post-holiday, as March-April is the peak season for the downstream polyester industry.

In China’s polyethylene (PE) market, procurement has slowed ahead of the holiday amid ample supply.

Sinopec Zhenhai Refinery and Chemical started up its 300,000 tonne/year HDPE unit in early January, adding pressure on an already amply supplied market.

The company’s other 300,000 tonne/year unit is scheduled to come on stream in end-March.

More imports in February and March are likely, while demand and arrivals may be disrupted amid the rapid spread of the Omicron variant of COVID-19.

“Supply will increase amid the new capacity released in Asia. But some increase will be offset by producers’ cutback in January to February,” Yu said.

In South Korea and Taiwan, operating rates of some steam crackers have been reduced because of squeezed margins in January, she said.

“It will lead to a decrease on the integrated PE plant production in the short term,” Yu added.

For recycled polyethylene terephthalate (R-PET), demand has climbed as converters rushed to store sufficient inventories to tide them through the long Lunar New Year holiday.

As some of them were cautious in their buying the past weeks and are now running short of inventories, they needed the stocks to keep their plants running during the festive break and to meet an expected post-holiday demand surge.

The upbeat sentiment in virgin PET has rubbed off on R-PET as converters that typically switch to cheaper PET pellets are unable to do so currently due to snug PET supply, with delivery period only around March onwards.

In the ethylene propylene diene-monomer (EPDM) market, the demand outlook is muted, not just on a seasonal holiday lull factor, but also due to pandemic-related uncertainties.

Downstream operations in China have been affected in recent weeks, after several cities were hit by coronavirus outbreaks.

Distribution networks are disrupted, resulting in delayed deliveries of raw materials, and finished products could not be dispatched to intended customers too.

In the ethyl acetate market, spot trade activity has slowed down but import demand is expected to improve in southeast Asia in the second half of February.

Ocean freight costs are expected to remain firm amid limited vessel availability out of China.

Some suppliers have scaled back offers for February spot etac cargoes as part of efforts to encourage demand.

“The government in Thailand is trying to boost the country’s economy. Vaccination rates have improved a lot,” a market source said.

Focus article by Felicia Loo

Additional reporting by Joanne Wang, Judith Wang, Arianne Perez, Julia Tan, Ai Teng Lim, Melanie Wee

Thumbnail picture: Customers shopping for Spring Festival in Fuyang, China on 24 January 2022. (By Sheldon Cooper/SOPA Images/Shutterstock)

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