INSIGHT: Tech stock surge, digitalization hearten petrochemical industry

Author: Felicia Loo

2020/08/31

SINGAPORE (ICIS)--It will be inexpedient for the global petrochemical industry to continue moping during the pandemic as a recent surge in technology stocks is a game-changer.

With the new norm brought about by the coronavirus, the use of computers and mobile phones is no longer a luxury but integral to our daily life.

Isn’t this a paradox amid a world recession? Not in the least.

How we live our lives - work from home, online school lessons, increased food delivery orders and e-commerce - especially during lockdowns and quarantine period, and the big leap in current drive towards automation and robotics, prompt greater use of computer-related materials.

On the back end, that will mean a much wider need for computing, networking infrastructure and data storage.

These sum up to a greater use of plastics ultimately: What is there not to celebrate for the petrochemical producers as the world trends towards digitalization?

Simply put, there will be more opportunities for plastics business.

Based on data from Munich-based economic research firm ifo Institute, the most elastic recovery would be the manufacturing of computers - which tips a 6.8-month return to previous levels, while the German chemicals industry is expected to return to normal within a year and before other manufacturing sectors.

What's more, the adoption of 5G network technology will boost growth for semiconductors and the electronic chemicals and materials that enable their production, according to David Li, the CEO of Cabot Microelectronics (CMC) late last year.

He had said that “5G as the next bandwidth for cellphones to access content will cause a huge refresh of smartphones over the next couple years and also enable things like autonomous driving ... it opens up more bandwidth [and] will drive new applications".

Meanwhile, demand for US acrylonitrile-butadiene-styrene (ABS) has seen some improvement as economies continue to re-open following efforts to stop the spread of the coronavirus, and market sentiment is that demand should continue to improve ahead of the holiday season in December.

Downstream demand for ABS comes from computers, keyboards and headsets - all of which are needed as parents transition their children to home-based learning.

Meanwhile in Asia, tighter supply is underpinning the spot ABS market amid healthier downstream demand.

In Europe, ABS supply remains balanced, with some expectations that availability could be tightening due to less competitive imports coming from Asia, as well as upcoming turnarounds.

Additionally, some producers mentioned selling out of material as a result and expect lower supply in September due to order levels higher than output rates.

Reflecting a positive note, current variable margin for Asian ethylene - the basic petrochemical building block - have improved from levels in February when the novel coronavirus outbreak was made known to the world.

Insight article by Felicia Loo

Photo: Shoppers looking at mobile phones on display at a duty-free shop in Haikou, capital of south China's Hainan Province. 12 July 2020 (Source: Xinhua/Shutterstock)

Additional reporting by Julia Tan, Stephanie Wix, Morgan Condon, Joseph Chang, Adam Yamelli and Peilin Yeow