INSIGHT: Asia's key petrochemical markets expect supply to pile up in Q4

Author: Felicia Loo

2020/09/18

SINGAPORE (ICIS)--The year 2020 has been roasted by the pandemic hitherto, with the petrochemical outlook for the fourth quarter being no exception as supply exceeding demand expected to be the case for major products.

The fact that August petrochemical exports in Singapore - the energy hub in the region – fell by 16.4% year on year underscored the vulnerability of the industry as the economic headwinds continue amid the relentless wave of coronavirus globally.

In keeping up with the downbeat trend, Japan's chemical exports fell by 8.2% year on year in August, weighing on overall shipments abroad.

The dreary situation was echoed by Asian Development Bank (ADB) as the agency said the economic prospects in developing Asia have worsened amid a revival of coronavirus cases in some areas, with regional GDP expected to contract by 0.7% this year.

The contraction marks the first regional recession in nearly six decades, it said in a report. The ADB previously projected the region’s economy to grow by 0.1% this year.

In the petrochemical realm, Asian ethylene supply could lengthen at the end of the year following the restart of South Korean producer Lotte Chemical’s Daesan cracker and new capacities totaling 660,000 tonnes/year in southeast Asia.

Lotte Chemical is targeting to resume production at its plant in mid-November. The producer became a buyer since March when its plant went down due to an accident.

Arbitrage opportunities from southeast Asia to China and Taiwan could increase in late 2020, in view of two upcoming expansion projects.

Thailand’s PTT Global Chemical (PTTGC) will start up a cracker with 500,000 tonnes/year of ethylene capacity in November, while JG Summit Olefins in the Philippines will bring on-stream an additional 160,000 tonnes/year of capacity at its cracker.

Both producers will have surplus ethylene for third parties once the projects commence operation.

Upcoming non-integrated downstream capacity expansions in China could help absorb the growing supply.

Qingdao Haiwan Chemical’s No 2 vinyl complex and Tangshan Xuyang Chemical’s 300,000 tonne/year styrene monomer (SM) unit will be starting up in the fourth quarter.

The projects will generate up to 270,000 tonnes/year of new ethylene demand annually.

For polyethylene in China, domestic supply may rise from new plants start-up. Several new plants are to start up in the second half of the year.

Liaoning Bora LyondellBasell commissioned its cracker in early August, while Sinopec Zhongke Refining & Petrochemical and Sinochem Quanzhou Petrochemical have started up their units in September.

Haiguo Longyou PC (originally called Daqing Lianyi) is to start up in Q4.

However, the market will not immediately feel the impact from the new plants’ start-up as it usually takes one to two months to offer a stable supply to the spot market.

The import supply may fall from some issues from overseas units.

Most Iranian PE cargoes may take a longer time to China as they are unable to arrive at main ports due to US sanctions.

Meanwhile, the arbitrage window was closed as overseas producers hiked their offers, which may support the Chinese market.

Demand is healthy as downstream production have resumed from the second quarter with the spread of coronavirus under control in China.

Domestic consumption has since recovered and the end-user demand remains remained strong, especially from the packaging industry and fast-moving consumer goods.

The ”Double-11” dubbed by Alibaba or known as the shopping festival on 11 November will further boost demand.

In addition, the Chinese government released some policies to stimulate the economy, which boosted the demand for PE though the export demand may be affected given the second wave of coronavirus in other parts of the world.

On Asian acrylonitrile butadiene rubber (NBR), the resurgence of the coronavirus may curb demand in the fourth quarter.

Geopolitical issues may be a key concern in view of its dampening impact on market sentiment.

India-China tensions and worries over the escalating tensions between the US and China ahead of the upcoming US presidential elections in November, may weigh on demand in the fourth quarter.

A shrinking global economy and slower-than-expected recovery in the global automotive sector is expected to stifle or suppress spot interest in the fourth quarter.

Rising key feedstock butadiene (BD) prices may further exert upward price pressure on NBR.

Asian paraxylene (PX) market fundamentals are likely to improve in the near term, spurred by downstream PTA expansion plans, and aromatics run rates at existing facilities being curtailed by weak production margins

However, looking ahead, supply of PX will gradually catchup with downstream expansion plans, as new PX capacities are due to come on line.

China’s Dongying Weilian Chemical has achieved on-spec production at its 1m tonne/year PX unit, and is expected to enter into commercial operations in October.

Meanwhile, Sinochem Quanzhou new 800,000 tonne/year PX unit in China is scheduled for start up in October.

The recent improvement in the price spread between isomer-grade mixed xylene (MX) and PX had also motivated idled PX units to be restarted.

Sinopec is planning to restart its No 2 PX unit located in Hainan in the second half of September. The unit had been shut since mid-January this year.

There were concerns that following Indonesia's lockdown of Jakarta, it might impact PTA run rates in the near term. Unplanned shutdowns at PTA facilities might increase the availability of spot PX cargoes, dependent on the duration of the shutdown.

Currently, PTA operations in Indonesia are steady, while the outlook remains unclear.

Bucking the trend, tightening supply on a slew of plant turnarounds in October amid the anticipated onset of traditional peak demand season in China is expected to continue to support Asia’s ethylene vinyl acetate (EVA) market in the fourth quarter.

Prevailing supply shortages and the demand recovery from the downstream photovoltaic (PV) industry in China since July have been supporting the EVA market.

Two producers in Thailand and South Korea have scheduled maintenance shutdowns at their plants in October, in addition to existing turnaround plans in South KoreaTaiwan and Saudi Arabia during the October to November period.

Additional reporting by Peilin Yeow, Helen Lee, Lucy Shuai, Nurluqman Suratman, Samuel Wong and Helen Yan

Image: Shipping containers at a port in Qingdao, China (Source: Sipa Asia/REX/Shutterstock)

Insight article by Felicia Loo

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