Shanghai Petrochemical shutdown impact likely limited amid ample supply

SINGAPORE (ICIS)–Sinopec Shanghai Petrochemical’s (SPC) shutdown is expected to pose limited impacts on petrochemical markets, as amply supply and weak demand are dominating fundamentals for most products, analysts said.

SPC has brought offline major production units at its petrochemical site, including polyolefin, butadiene (BD), monoethylene glycol (MEG) and paraxylene (PX), among others, following a fire at its 255,000 tonne/year No 1 MEG unit early in the morning of 18 June.

“The impact on [the] whole polyethylene (PE) market will be limited, as its capacity doesn’t account for a big slice in China’s total and considering PE market is entering the lull season, demand will be weak,” said ICIS senior analyst Amy Yu.

Yu added that the accident, however, may boost sentiment of low-density PE (LDPE).

For propylene and polypropylene (PP), oversupply is expected to ease, according to ICIS senior analyst Joey Zhou.

“Market players [may] still take [a] wait-and-see approach as they are cautious on the present weak end-user demand,” Zhou noted.

ICIS senior analyst Ann Sun said MEG market sentiment is not expected to change, given the uncertain restart time of SPC’s plant and ample MEG supply in the market.

“Even if the shutdown is longer than expected, there might be rising speculation sentiment in the market, but supply is able to increase quickly in response, given [the] current low operating rate,” said Sun.

“It may support upward sentiments of [the] current balanced butadiene market. But the negative margins of major BD derivatives might dampen the upward trend.”

Futures of most petrochemicals traded downward during Monday morning’s session.

At Dalian Commodity Exchange, the drop was 1.25% for linear LDPE (LLDPE), 0.9% for PP and 4.23% for MEG futures.

For PX, the incident could lead to a tighter Asia PX market and support its prices, said ICIS senior analyst Jimmy Zhang.

“Purified terephthalic acid (PTA) producers are expected to suffer heavier losses after the accident, considering the continuous weak demand from [the] polyester sector,” Zhang also noted.

In response to the fire, the Shanghai Emergency Management Bureau has launched a campaign to investigate and rectify hidden dangers that threaten the safe production of hazardous chemicals.

The focus of the campaign will include improving safety at chemical industrial parks, safety risk management and control of large oil and gas storage facilities, special inspections and supervision of major hazard sources, and safety risk prevention and control of old equipment.

Thumbnail photo: Aerial photo taken of firefighters working at the fire site at Sinopec Shanghai Petrochemical’s monoethylene glycol (MEG) plant. (Source: CHINE NOUVELLE/SIPA/Shutterstock)

Focus article by Fanny Zhang