INSIGHT: Marginal March China demand increases support Asia pricing, offset by new capacities – ICIS analysts

Joey Zhou

17-Mar-2023

SINGAPORE(ICIS)–Asia petrochemical products in different value chains are expected to see varying trends in March, given the shifting states of their supply and demand balances. Among the 31 petrochemical products covered by the ICIS Asia Price Forecast, half of the products will see a lower average price in March 2023 relative to February.

Overall demand recovery is expected to develop in China from March, with activity in the country further resuming as pandemic constraints ease. Boosted by strong performance in tourism and outdoor activities, polyester prices are expected to see the strongest gains during the month.

Production outages in Q1 will also drive acrylic acid prices higher on average in March.

Fluctuating crude oil prices may add further uncertainty to price trends. Daily WTI prices decreased by 8% on 15 March whilst naphtha prices fell below $700/tonne midway through the month.

Meanwhile, demand from some sectors, such as real estate and automotive, could witness some marginal improvement but still not strong enough to eliminate concerns. Highly related to the construction industry, DINP and oxo-alcohol prices will decrease on average in March.

Some products’ prices will still be heavily weighed down by new capacities, such as propylene and PP. Ethylene prices also transit to weakness in March, but with a high starting point in early March, the average price is still higher than February.

MIXED DEMAND RECOVERY
China’s demand recovery was structurally different in Q1, with a quicker recovery in the non-durable consuming sector, but a slower rebound in durable goods sectors and investment.

In catering and tourism sectors, China is seemingly back to a pre-pandemic world after the Lunar New Year holiday.

According to China’s Ministry of Transport, 54 cities of China that have urban rail and subway, totally delivered 2.18 billion passenger trips in February, growth of 39.6% year on year and 9.6% higher than the average monthly passenger volume in 2019.

The increasing railway traffic volume in past two months in 2023 also reflects the strong recovery of cross-cities travelling in China.

Fast-moving consuming goods (FMCG) will be strongly boosted by more people’s outdoor activities and will boost polymers’ demand. Food packaging and beverage consumption will support PP and PET bottle grade prices.

“More purchases of clothes will benefit the POY [polyester] industry”, ICIS senior analyst Jenny Yi said.

Significant uncertainties remain for some end-user consumption sectors, resulting in cautious market sentiment.

In the automotive industry, sales in January and February were slower year on year as the acquisition tax cut and EV subsidies expired by the end of 2022. Demand from the construction sector continues to be weak due to China’s property crisis.

Exports remain bearish amid the global inflation and pressure on polyolefins demand.

China has just concluded its ‘two sessions‘ parliamentary meetings in early March. We expect petrochemical demand will transit to increase after March, but more stimulus policies from China government are needed.

CAPACITY ADDITIONS WEIGH ON SENTIMENT
New capacity will be another key concern for downward pressure on some prices this year.

The two large naphtha crackers and derivative units, started up in mid-February, will make some products like PE and PP further over-supplied as they enter more stable operation.

New propylene capacity additions totalling 2.6m tonnes/year are scheduled to come on-stream between March to April. Compared with the ethylene chain, the propylene and PP chain is expected to be impacted by new capacity to a larger extent. This is caused by numerous new PDH projects this year.

Only one integrated complex is scheduled for the rest of H1 2023, which is Shandong Jinghai Petrochemical’s 450,000 tonne/year LPG-based cracker in China.

Facing the potential peak of capacity increase, with a 9% growth in Q2 from Q1 in China, Asia PP prices in March and April are expected to trend down.

“Over 140,000 tonnes ethylene cargoes are expected to be shipped from the US to Asia during Q2″, ICIS senior analyst Amy Yu said. ” It will bring more caution to market sentiments”, she added.

Furthermore, supply inflows from some other regions may lead to ample supply for Asia after March. Middle Eastern cargoes for PP, PE and ethylene are gradually returning, as the region’s seasonal turnaround is expected to ease off towards end March 2023.

Over 140,000 tonnes ethylene cargoes are expected to be shipped from the US to Asia during Q2 and bring more caution to market sentiments.

With increasing supply in the local China market and relatively higher prices in other regions, some PP producers will maintain their initiatives for exporting more PP cargoes to other areas, including southeast Asia, South Africa, and southern Asia. Such trade flows based on an arbitrage window will impact other region’s price trends as well.

Our forecast assumes new capacities in Q2 will be on track. If some delays happen, some products like PP in over-supply may see the magnitude of decrease limited.

Meanwhile, margin changes will add more uncertainties to the supply position.

Light olefin margins from all routes have rebounded through February to mid-March. In February, the crackers in Taiwan and South Korea have operated at averages nearby 60% and 75%, respectively. Considering recent weakening feedstock prices, once the rebounding of margins continues, some improvements of operations may occur.

Insight article by Joey Zhou.

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