Asia petrochemicals wreathed in uncertainties; sentiment downbeat

Author: Felicia Loo

2021/09/30

SINGAPORE (ICIS)--Asia’s petrochemical markets are wreathed in uncertainties as sentiment is hit by severe power outages in China, economic concerns and shrinking auto production.

Reflecting soft demand, China's restocking activities prior to its National Day holiday (1-7 October) are limited, with factory operations curtailed as provinces attempt to keep energy consumption within annual limits prescribed by Beijing under the dual-control policy designed for environmental protection.

Meanwhile, vessel delays in China caused by a myriad of issues - congestion, a shortage of pilots and strict quarantine measures - also pose a challenge.

Unlike before, the average waiting time to load and unload at Chinese ports is around one to two weeks at present.

China requires foreign vessels to have specialized pilots on board before entering internal waters along the Yangtze River.

The intra-northeast Asian market continues to see prompt cargoes struggle to find deployment as most owners are still reluctant to call at Chinese ports.

Also, with global vehicle production on the decline amid severe shortage of semiconductor chips, a major pillar of demand for petrochemicals is threatened.

Petrochemical-based materials account for more than a third of the raw material costs of an average vehicle.

Polypropylene (PP) has a 35% share of the key polymers used in cars, followed by polyurethane (19%), polyamides (11%) and acrylonitrile butadiene styrene (ABS)/styrene acrylonitrile (SAN) resins.

DOWNBEAT ECONOMY
On a macrolevel, some investment banks have shaved their GDP growth forecast for China to below 8%, as industries struggle from power shortage stemming from high coal prices, and as the dual-control energy policy plays out.

Evergrande, China’s second-bigger property developer, is a bane to the Chinese economy, having chalked up $305bn in debt, or equivalent to 2% of China’s GDP.

This crisis could threaten the stability of the Chinese property market, as well as the financial system.

A weakening economy in Vietnam also does not bode well for the petrochemical markets in Asia.

The southeast Asian economy contracted by 6.17% year on year in Q3, the largest quarterly slump on record as COVID-19 restrictions continue to weigh on its industrial and services sectors.

PETROCHEMICAL STRUGGLES
The petrochemical markets in Asia certainly do not have it easy.

In the ABS market, momentum is slow across the region as players grapple with reduced output, as well as lower derivative production in China amid the energy curbs.

In the paraxylene (PX) market, uncertainties prevail amid persistent margin squeeze in downstream purified terephthalic acid (PTA) and polyester markets, coupled with rising freight costs.

There are expectations that PTA and polyester production in China would decline in the near term in view of the energy controls.

PTA production margins are also being compressed by rising cost of another feedstock - acetic acid. Several plants in China have shut, leading to weaker prompt PX demand.

PX supply, on the other hand, may increase amid expectations that Zhejiang Petrochemical will raise operating rates at its aromatics facility from November onward.

Higher production will hinge on the company’s ability to secure additional feedstock crude quota going forward, which remains uncertain.

For monoethylene glycol (MEG), supply in China fell as production, especially from coal-based units, was cut amid current energy restrictions.

Buying sentiment downstream was dampened as polyester plants, dyeing and weaving factories in east China also had to adjust down their operation to reduce emissions.

In the methyl methacrylate (MMA) market, China is facing curtailed domestic output with some plants starting maintenance due to the energy controls.

Some downstream operations, including at polymethyl methacrylate (PMMA) plants in Jiangsu province, were also affected by the same policy.

Chinese MMA export availability is currently limited, with trades hindered by port congestion.

In southeast Asia, demand remained subdued, although there was some pick-up in October contractual offtakes, as COVID-19 restrictions are being lifted.

Focus article by Felicia Loo

Additional reporting by Angeline Soh, Samuel Wong, Judith Wang, Li Li Chng and Luffy Wu

Thumbnail photo: At Yangpu international container port in south China's Hainan Province on 26 May 2021. (Source: Xinhua/Shutterstock)