Crude, Asia petrochemical markets calm despite US Gulf shutdowns

SINGAPORE (ICIS)–Global crude and Asia’s petrochemical markets are relatively calm despite massive shutdowns of refineries in the US Gulf Coast currently being pounded by Hurricane Laura, which made a landfall on Thursday afternoon in southwest Louisiana.

Concerns about global demand being dampened by continued spikes in coronavirus infections weighed across markets.

Crude prices remained close to their highest levels since early March this year with producers in the Gulf of Mexico having shut-in 84% of the region’s total output – equivalent to 1.56m bbl/day – and evacuated over 300 offshore facilities.

“Although Hurricane Laura is incoming very fiercely, the market thinks its impact will be very short-lived as oil producers in the region are just temporarily pausing their operations for a few days,” said Li Li, head of ICIS crude and distillates analytics.

For ethylene, the hurricane will result in at least several days of delay in the shipment of cargoes from Houston to northeast Asia.

Around 40,000 tonnes of US supply are slated to load between the second half of August and early September.

A buyer is considering booking regional spot supply amid concerns over possible lengthy delays in the delivery of its deep-sea cargoes for second-half September and first-half October delivery.

US-TO-ASIA ARBITRAGE WINDOW CLOSED FOR SOME
For petrochemical feedstock naphtha, the expected strength in Western markets could mean less arbitrage supply flows to Asia as a result of the hurricanes hitting the US Gulf Coast.

Arbitrage flows from the US to Asia is deemed unviable on paper at least, according to market participants.

Naphtha prices in Asia gathered some ground this week, buoyed by spot demand for October supplies, which helped lift the product’s refining margin to a one-month high of above $70/tonne.

Demand, however, is not substantially robust, with limited bullish factors in the market for now.

Spot naphtha cargoes for October shipments in the form of purchases from South Korea fetched small discounts to spot CFR (cost and freight) Japan quotes compared with premiums achieved in the previous months.

In the styrene monomer (SM) market, the arbitrage window for US styrene cargoes into Asia may remain closed, with a price spread of less than $50/tonne between US FOB Gulf and CFR Asia markets in the week ended 28 August.

Selling pressure is limited as some units in the US such as Styrolution have shut down to prepare for Hurricane Laura.

Most spot FOB US Gulf cargoes for end-August and early September-loading have already been sold earlier.

Monthly US SM exports to Asia typically ranges from 20,000 tonnes to 50,000 tonnes.

Market participants are not ruling out the possibility of some short-covering by some northeast Asian participants for October arrivals should logistics in the US take a longer-than-expected time to recover.

At least 25,000 tonnes of deep-sea SM material for October arrival have already been sold into Asia earlier.

Asia’s paraxylene (PX) market is likewise unaffected, as the region has been self-sufficient following start-ups of new facilities since 2019.

There were some concerns that a resulting reduction in US refinery rates in the US would trigger a crude sell-off and exert a downward pressure on PX prices in Asia.

In the mixed xylenes (MX) market, the arbitrage window from the US is also closed, with the spread between FOB US Gulf and FOB South Korea prices at less than $50/tonne.

There is still a sizable motor gasoline supply length reflected in the inventory despite the US refinery shutdowns.

As MX is mainly used in gasoline blending, physical demand for octane booster is likely to stay weak.

EYES OUT FOR OTHER MARKETS
In the methyl tertiary butyl ether (MTBE) market, bids have been rising for four straight sessions, with Asian players eyeing arbitrage opportunities to ship out cargoes to Latin America amid plant shutdowns in the US.

Mexico and Chile – main export destinations for US MTBE – might experience shortage of supply, which Asia could provide.

Supplies coming from the US will naturally be halted amid the US shutdowns but the overall impact on the Asian markets are not expected to be significant.

In the case of methanol, supply to South Korea could be affected as the country is the US’ biggest export destination.

In terms of prices, however, Asian markets have not been tracking the strong US market for some time now.

For polyvinyl chloide (PVC), spot supply from the US has already been snug since Formosa Plastics USA declared a force majeure in mid-August at its Point Comfort and Baton Rouge units.

For acetone, discussions for Asia-origin acetone to US came to a standstill this week as US-based importers requested more time to work out their inventory requirements.

Sellers in Asia are directing their attention to other deep-sea markets such as Europe and South America, for the time being.

So far in August, more than 6,000 tonnes of Asia-origin spot acetone have been sold to the US.

Discussion levels have been fluctuating in the high-$600/tonne FOB NE Asia levels up to $750/tonne FOB NE Asia.

In the phenol market, discussions for US-origin cargoes were limited prior to the hurricanes.

As US cargoes are subject to anti-dumping duties in both China and India, recent offers were met with limited interest among importers in the bonded market.

For Taiwan-based importers, their inventory requirements had been met from earlier purchases and are currently not active in the market.

In the synthetic rubber market, the US shutdowns are expected to have limited impact since Asian spot supply is curtailed due to scheduled plant turnarounds in September amid firm regional demand.

Among major Asian SBR makers, South Korea’s Kumho is shutting its 270,000 tonne/year SBR plant in Ulsan for turnaround in September.

LG Chem has been running at reduced rates since early July and will shut down one 80,000 tonne/year SBR line in Daesan permanently in September for commercial reasons.

In the acrylonitrile (ACN) market, supply from INEOS Nitrile in the US under contract volumes has not been affected so far

For monoethylene glycol (MEG) market, exports from the US will come off from highs in the first half.

“Not much impact from the hurricane, only shipment a bit delayed,” a northeast Asian producer with its unit in the US said.

In the first half of 2020, US cargoes which were supposed to be exported to Europe, had nowhere to go but China amid the dwindled demand in Europe.

From January to June, China imported 336,133 tonnes, nearly four times of the volume for the whole of 2019.

In the vinyl acetate monomer (VAM) market, Asian supply could be diverted to Europe, where demand is stronger, amid the US shutdowns.

Restocking activities are also occurring in India.

“My Europe-based customer asked me to reserve 3,000 tonnes even though the earliest arrival schedule is October,” said a major VAM producer, suggesting supply concerns preceding the impact of Hurricane Laura on US supplies.

But the effects of reduced consumer purchasing power and rising unemployment rates as the coronavirus pandemic continued to ravage economies in southeast Asia put a drag on producers’ earlier push to recover margins for August shipments.

“We [will] have to watch the hurricane impact next week,” a southeast Asia-based distributor said, deeming the impact in Asia to be minimal if the duration of plant outages is less than a month.

The approach of Hurricane Laura has prompted a wave of plant shutdowns.

Apart from the  shut-in of 84.3% of the total US Gulf oil production, gas shut-ins totalled 1.65bn cubic feet/day, or 60.95% of the US total in the Gulf.

Companies have evacuated 299 production platforms, or 46.5% of the 643 manned platforms in the Gulf of Mexico.

Focus article by Nurluqman Suratman and Pearl Bantillo

Additional reporting by Judith Wang, Helen Lee, Melanie Wee, Chng Li Li, Helen Yan, Keven Zhang, Angeline Soh, Kite Chong, Trixie Yap, Samuel Wong and Jonathan Chou.

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