Global chemical sentiment bearish on Omicron spread

Felicia Loo

03-Dec-2021

SINGAPORE (ICIS)–Global chemical sentiment has become bearish amid the rise of the Omicron variant of the coronavirus, with buyers sidelined at a time of uncertainty and as several countries imposed travel restrictions and temporary border closures.

The new variant has its footprint in several countries around the world including Japan, South Korea, Singapore, the UK, Germany, Italy and others.

Omicron could upend the hope of us living with COVID-19 in an endemic backdrop, as restrictions could proliferate with the new variant emerging in more countries.

This could derail global economic recovery, ergo demand for petrochemicals would be undermined.

At this juncture, Omicron could further erode US margins for polyethylene (PE) if travel restrictions imposed to limit the spread of the disease lead to a sustained decline in oil prices.

European domestic Group I base oils market is ending 2021 on a rather subdued note, with rising Omicron fears driving a slow start to December trading.

In Asia, sentiment in the oleochemicals market has turned increasingly bearish because of the latest COVID-19 variant, causing spot interest to wane.

Lower crude oil prices and declining upstream crude palm oil (CPO) and the key feedstock palm kernel oil (PKO) values have weighed on demand.

Southeast Asian biodiesel producers have since lowered their selling indications as CPO futures retreated.

In the regional ethyl acetate (etac) markets, buying sentiment is increasingly cautious.

Toward yearend, market participants are less keen in building inventories in the current market environment lacking certainty.

As of 2 December, asking levels for spot etac cargoes softened at the low-$1,400/tonne CFR (cost and freight) SE (southeast) Asia levels, yielding subdued import demand amid high freight costs.

“Negotiations for January shipments have not begun due to the unclear situation… with downtrend of oil and upstream [markets],” said a southeast Asia-based market source, adding: “End-users expect prices to soften so they wait and see.”

India’s methanol market trembled since the beginning of the week on expectations that the Omicron COVID-19 variant to hurt demand.

By selling cargoes with discounts, the sellers demonstrated eagerness to liquidate inventory as early as possible.

This resulted in lower spot prices at Indian rupee (Rs) 32/kg ex-tank west India, down Rs2/kg week on week.

Upstream, naphtha prices in Asia have fallen alongside global crude oil futures following renewed worries on fuel demand.

But while outright prices are closely tracking volatile crude oil markets, supporting physical naphtha demand is cushioning the refined product’s market structure in a wide backwardation.

Improved margins for downstream olefins producers are in part encouraging demand for the petrochemical feedstock, against a backdrop of receding naphtha values in Asia.

Growing concerns, however, of the Omicron’s impact on fuel demand in Europe amid tighter travel restrictions being re-imposed, could potentially add to excess naphtha flows to the east.

Focus article by Felicia Loo

Additional reporting by Helen Yan, Keven Zhang, Melanie Wee, Al Greenwood and Eashani Chavda

Thumbnail photo: SARS-CoV-2 Variant Omicron and the Flag of Japan, taken in Asuncion, Paraguay – 30 November 2021. Japan was among the first countries to completely close its borders to foreigners following Omicron’s emergence. (By Andre M Chang/ZUMA Press Wire/Shutterstock)

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