LONDON (ICIS)--Petrochemicals companies' fortunes have improved over the past three months as demand has strengthened and prices increased.
The short-term outlook before the turn of 2021 was largely positive, with news of coronavirus vaccines lifting spirits if not physical markets.
Sober, post-holiday reflection, however, focuses as much on the potential downside to the first quarter as to market recovery from pandemic-induced restrictions.
The global ICIS Petrochemicals Index (IPEX) reflected fast recovering petrochemical and polymers prices in December.
Monthly contracts largely had settled at the end of November while more spot-oriented product markets continued to show signs of tightening as buyers sought sufficient product to see them over the quiet period against a backdrop of still strengthening manufacturing and healthy packaging demand.
The momentum behind year-end 2020 prices for polyethylene (PE) and polypropylene (PE) in Europe has not been lost, ICIS reported this week.
Ethylene and propylene tightness and some polyolefin production issues have underpinned the polymers.
In the US, it cannot be ignored that ethylene contract prices (for December) were at their highest level since October 2018; demand for ethylene is healthy in downstream US and overseas markets.
In the latter part of 2020, benzene prices were being supported by stronger styrene demand as markets for styrenic polymers and derivatives improved.
Manufacturing sectors, including the automotive industry, were coming back and chemicals demand was recovering from the slump around April.
It is not so much a question now of how market growth has run out of steam as of the barriers to, and pressures on, further demand growth.
Analysts have been relatively bullish on prospects for economic growth in 2021, but a deeply worrying resurgence of coronavirus infections and stricter lockdowns have introduced a more sombre tone.
The World Bank expects global economic output to rise y 4% this year but remain well below projections made before the pandemic.
The pace of recovery will vary considerably across regions, it said; the range of its forecast from 1.6% to 5% illustrates, however, the weight of downside risks.
These include a further increase in the spread of the virus, vaccine delays, longer-lasting affects on output from the pandemic and financial stress triggered by high debt levels and weak growth.
The limits of market demand are being tested now, in more ways than one.
Petrochemical prices in China began to fall in December; port inventories had built through the year but were rising fast for products such as styrene, illustrating that China’s all important export business is running out of steam.
Exporters are facing difficulties because sea freight is under great strain and not able to keep up with demand, The freight issue could be relatively short-lived or persist - the outlook is as uncertain as that.
There are reports too of a resurgence of Covid-19 cases in northern China.
Meanwhile, single-use plastics demand is being curtailed by local restrictions on use.
The ICIS China petrochemical index for slipped 2% when measured on 31 December compared with the end of November. Price points for 10 products were higher, but seven were lower.
Insight by Nigel Davis