Asia petrochemical demand mixed amid tightening supply

Author: Felicia Loo

2020/07/23

SINGAPORE (ICIS)--Demand for key petrochemicals in Asia is mixed, with some markets in the pits despite shrinking supply, while other products appear to fare better, as the onslaught of the coronavirus carries on.

But the overall market outlook for the second half of the year will be dim amid weakness in the world's second-biggest economy.

Even as China’s economy grew at 3.2% in the second quarter, reversing the 6.8% year-on-year decline in the previous quarter, the first half of 2020 still recorded an average contraction of 1.6%.

Under pressure is the regional monoethylene glycol (MEG) market due to rising inventories at ports in China and slowing polyester demand.

MEG inventories in east China have risen to nearly 1.5m tonnes, the highest level since 2014, which cast a shadow on market sentiment.

Compounding the situation, the lull season in July and August stretches the weakening demand in downstream polyester sector.

This was evident as major Chinese polyester producers embarked on production cut, deemed an unavoidable move given squeezed margins and poor sales.

Any spot buying was mainly from traders as end-users were mostly covered by contract supply.

The silver lining in the cloud is stronger feedstock cost that lends support to the MEG market, providing a floor to price downtrend.

The ongoing feedstock production cut in the region also deterred sharp price decline to an extent.

Joining the depressed club is the regional paraxylene (PX) market, where participants stayed cautious amid an uncertain outlook.

As a result, liquidity for spot physical fixed-price cargoes remained low.

Despite the current narrow price gap between PX and upstream naphtha, buyers were unwilling to aggressively bid up, especially with more than sufficient supply and high inventories within China.

In addition, there were expectations that demand for PX will decline in the near term, as downstream purified terephthalic acid (PTA) plants will undergo maintenance.

Sellers were not aggressive in their offers, as current aromatics production margins are in the negative territory.

Market structure remained in a contango, while floating-formula basis discussions stayed in the double-digit discount region.

On ethanolamines, the overall demand in China for monoethanolamines (MEA), diethanolamines (DEA) and triethanolamines (TEA) was hit by rains in the region.

Demand was particularly hit in the DEA sector, as downstream DEIPA (diethanol isopropanolamine) for end-use in cement-mixing aids for the construction industry slowed down during the rainy season.

In southeast Asia, some market players were seeing a little pick-up in demand for DEA, for end-use in DEIPA as countries re-open their economies after lockdowns/movement restrictions, which were imposed to curb the spread of the deadly novel coronavirus.

Inquiries for DEA increased, as compared to MEA and TEA. But with buyers still cautious, some suppliers lowered their offers in a bid to tempt buying interest.

In India, demand for MEA was deemed the strongest overall, as a major domestic downstream manufacturer for end-use in detergents resumed operations.

Asia’s butadiene (BD) market, however, was holding up. Spot buying interest improved in the week as two sales tenders by two separate regional producers attracted strong interest from traders.

Traders were in the spot market to procure August loadings to meet contractual commitments. Demand for August shipments and September-arrival cargoes also increased due to an expected shutdown at a major cracker in mid-August.

Taiwan's Formosa Petrochemical Corp (FPCC) will shut down its 176,000 tonne/year BD plant in Mailiao for 45 days from mid-August.

Demand had picked up due to rising factory activities as economies re-opened with the easing of lockdown measures.

BD consumption from the downstream synthetic rubber (SR) makers and acrylonitrile butadiene styrene (ABS) makers is expected to grow gradually in the coming months.

The SR market has already started to show signs of improvement, with prices on the uptrend.

Meanwhile, the northeast Asian propylene market is facing snug supply from South Korea, supporting a price uptrend to some extent.

A recent fire at FPCC’s refinery in Mailiao, Taiwan prompted the shutdown of one of its two residual desulphurisation (RDS) units.

While it was unclear how or if the residue fluid catalytic cracking (RFCC) units were impacted, it did trigger some spot propylene buying activities late last week.

Focus article by Felicia Loo

Additional reporting by Judith Wang, Samuel Wong, Yuanlin Koh, Helen Yan and Joson Ng

Photo: A freighter at Quanzhou container port in Fujian, China. 15 July 2020 (Source: Xinhua/Shutterstock)

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